コカコーラのトップのムーター・ケントは、業績のパフォーマンスを上げるにはイノベーションと投資に加え「もっとクールになるんだ」と言ってる。クールな企業と言えば、アップル。グーグルもかっこいい感じ。スターバックスも割とかっこいい雰囲気がある。またユニクロはいつの間にかダサい匂いが消え、かっこいい感が漂う。LGの広告もかっこいい。クールさが人を惹きつけ業績を伸ばす。「しまむらはどうなんだ？？」と聞かれると困るけれども、消費者は企業のクールな匂いを無視できないし、近づきたい。
2012/02/29
クールな香りを放つ企業
コカコーラのトップのムーター・ケントは、業績のパフォーマンスを上げるにはイノベーションと投資に加え「もっとクールになるんだ」と言ってる。クールな企業と言えば、アップル。グーグルもかっこいい感じ。スターバックスも割とかっこいい雰囲気がある。またユニクロはいつの間にかダサい匂いが消え、かっこいい感が漂う。LGの広告もかっこいい。クールさが人を惹きつけ業績を伸ばす。「しまむらはどうなんだ？？」と聞かれると困るけれども、消費者は企業のクールな匂いを無視できないし、近づきたい。
2012/02/28
銀行ビジネスのボトムライン
あらゆる犠牲を払ってでも取り付け騒ぎを防ぐ
To reduce banks' risks, profits have to shrink
The debate over how to regulate banks grow ever uglier. I want to
bring it back to what matters with the aid of one fact, and one
principle that is widely forgotten but that should still dominate the
debate.
The fact is illustrated in the graphic. Banks had an extreme profits bubble in the years before the credit crisis. (European banks are in the chart; US banks would look similar.)
How could earnings take wing like this? Basic financial theory makes clear: to make returns so much greater than former norms, they must have taken on far greater risks.
We know what happened in 2008. Banks' risk must, therefore, be reduced. That means, of necessity, that banks' profit will be lower than they were during the mad years of the credit boom. Reducing banks' profits is not an end in itself and has nothing to do with ideology or revenge. It is simply a necessary byproduct of a move to reduce risk.
Now for the oft-forgotten principle: bank runs are lethal. They must be prevented at all costs.
This sounds almost quaint. Even after the UK's Northern Rock bank run in the autumn of 2007, they seem like something out of Charles Dickens, or It's A Wonderful Life.
But bank runs - which cause banks to collapse when customers all take out their deposits at once - have been endemic through much of history. It was widespread banking collapses in the early 1930s that turned a severe downturn into the Great Depression. That, in turn, convinced US politicians, with others following their lead, that depositors must be protected. Rather than using the threat of a bank run to discipline banks, US regulators introduced deposit insurance.
The result was what the Yale academic Gary Gorton calls a "quiet period" of many decades without a bank run. Historically anomalous, it overlapped with a period of steady growth. But Depression-era regulations were steadily removed, while banks found ways round the rules that remained.
Once this process was complete, banks enjoyed the risk binge shown in the chart - and then nearly collapsed. That collapse was driven by a bank run. It was not the Lehman Brothers bankruptcy itself that brought markets to the brink of disaster, but the fact that two days later a large money market fund, perceived as being as safe as a bank but without deposit insurance, took a loss on Lehman bonds.
Money market funds had grown up as a way around deposit insurance and thus offered higher rates than banks. The news that they could lose money led to a stampede by investors.
In the ensuing months, government worked on the assumption that the collapse of a large retail bank must not be allowed. Huge sums were devoted to keeping afloat large universal banks, which combined the investment and retail banking. If the ATMs of a large bank had ever stopped working, the crisis could have tipped into a far more dangerous phase.
How does all this relate to the current debate? In the US, the Volcker rule - named after Paul Volcker, the former Federal Reserve chief who evidently still resents and regrets that the way regulations were chipped away under his watch - will force deposit-taking banks to give up proprietary trading. This is about protecting depositors and averting bank runs.
It would make banks less profitable. That is a shame. Banks needs to build their profits to make themselves less risky. But it is unavoidable and is no reason to avoid reforms. And yet the Volcker rule is at the centre of a firestorm of criticism. US banks are outraged, as are foreign politicians, whose banks could be affected.
It is important to get the detail right, but what is needed is a good-faith effort to ensure that the Volcker rule that emerges succeeds in safeguarding depositors. Everything else is secondary.
In the UK, bonuses are back in the line of fire, along with the losses of the two wards of the British state, Loyds Banking Group and RBS. Both needed bail-outs to survive and both are dogged by a legacy of unwise risk-taking. But it is unclear why bonuses matter. Envy and revenge are natural human emotions, but have nothing to do with creating a safer banking system.
Bankers' pay is a subsidiary issue, a symptom rather than a cause. It will tend to fall as bank profits come down. Competitive dynamics within the industry put a limit on how much they can prudently be cut, even by a lossmaking bank. And for those traders whose performance can be easily benchmarked by their profits and losses each year, "bonus" is a misnomer. They are being paid for results.
Taking the long view, the project of de-risking the banking system is vital. It means that banks and bankers will make less money than they did in the boom years. This makes for a slower economy and it means that RBS and Lloyds will be greater burden on the UK taxpayer for longer. But it is unavoidable. Neither bankers' special pleading nor populist outrage, should obscure this. from FT.
To reduce banks' risks, profits have to shrink
The fact is illustrated in the graphic. Banks had an extreme profits bubble in the years before the credit crisis. (European banks are in the chart; US banks would look similar.)
How could earnings take wing like this? Basic financial theory makes clear: to make returns so much greater than former norms, they must have taken on far greater risks.
We know what happened in 2008. Banks' risk must, therefore, be reduced. That means, of necessity, that banks' profit will be lower than they were during the mad years of the credit boom. Reducing banks' profits is not an end in itself and has nothing to do with ideology or revenge. It is simply a necessary byproduct of a move to reduce risk.
Now for the oft-forgotten principle: bank runs are lethal. They must be prevented at all costs.
This sounds almost quaint. Even after the UK's Northern Rock bank run in the autumn of 2007, they seem like something out of Charles Dickens, or It's A Wonderful Life.
But bank runs - which cause banks to collapse when customers all take out their deposits at once - have been endemic through much of history. It was widespread banking collapses in the early 1930s that turned a severe downturn into the Great Depression. That, in turn, convinced US politicians, with others following their lead, that depositors must be protected. Rather than using the threat of a bank run to discipline banks, US regulators introduced deposit insurance.
The result was what the Yale academic Gary Gorton calls a "quiet period" of many decades without a bank run. Historically anomalous, it overlapped with a period of steady growth. But Depression-era regulations were steadily removed, while banks found ways round the rules that remained.
Once this process was complete, banks enjoyed the risk binge shown in the chart - and then nearly collapsed. That collapse was driven by a bank run. It was not the Lehman Brothers bankruptcy itself that brought markets to the brink of disaster, but the fact that two days later a large money market fund, perceived as being as safe as a bank but without deposit insurance, took a loss on Lehman bonds.
Money market funds had grown up as a way around deposit insurance and thus offered higher rates than banks. The news that they could lose money led to a stampede by investors.
In the ensuing months, government worked on the assumption that the collapse of a large retail bank must not be allowed. Huge sums were devoted to keeping afloat large universal banks, which combined the investment and retail banking. If the ATMs of a large bank had ever stopped working, the crisis could have tipped into a far more dangerous phase.
How does all this relate to the current debate? In the US, the Volcker rule - named after Paul Volcker, the former Federal Reserve chief who evidently still resents and regrets that the way regulations were chipped away under his watch - will force deposit-taking banks to give up proprietary trading. This is about protecting depositors and averting bank runs.
It would make banks less profitable. That is a shame. Banks needs to build their profits to make themselves less risky. But it is unavoidable and is no reason to avoid reforms. And yet the Volcker rule is at the centre of a firestorm of criticism. US banks are outraged, as are foreign politicians, whose banks could be affected.
It is important to get the detail right, but what is needed is a good-faith effort to ensure that the Volcker rule that emerges succeeds in safeguarding depositors. Everything else is secondary.
In the UK, bonuses are back in the line of fire, along with the losses of the two wards of the British state, Loyds Banking Group and RBS. Both needed bail-outs to survive and both are dogged by a legacy of unwise risk-taking. But it is unclear why bonuses matter. Envy and revenge are natural human emotions, but have nothing to do with creating a safer banking system.
Bankers' pay is a subsidiary issue, a symptom rather than a cause. It will tend to fall as bank profits come down. Competitive dynamics within the industry put a limit on how much they can prudently be cut, even by a lossmaking bank. And for those traders whose performance can be easily benchmarked by their profits and losses each year, "bonus" is a misnomer. They are being paid for results.
Taking the long view, the project of de-risking the banking system is vital. It means that banks and bankers will make less money than they did in the boom years. This makes for a slower economy and it means that RBS and Lloyds will be greater burden on the UK taxpayer for longer. But it is unavoidable. Neither bankers' special pleading nor populist outrage, should obscure this. from FT.
2012/02/21
flow of money - central bank, natural sources and emerging world
Inflation cycle puts lid on a sustained recovery
Inflation of deflation? The debate still rages. And I still fear that the correct answer could be "both".
This year has seen a distinct uptick in inflation fears for the developed world. That is the natural consequence of the uplifting data from the US, where both the labour and housing markets are at last showing some kind of a recovery after long slumps. Economic activity means more inflationary pressure.
This is most clearly seen in the bond market's implicit inflation expectations. Judging by the gap between inflation-linked and fixed-rate Treasury bonds, the market expects inflation of 2.23 per cent per year over the next decade - up from 1.7 per cent last September.
But there are other sources of inflation. One comes from the supply of natural resources. Oil prices are rising nastily once more. Following last year's insurrection in Libya, from which supply will recover only slowly, there is now also the real prospect of an embargo on oil supplies from Iran.
This mostly affects European producers, where oil prices look particularly ugly. When measured in euros, the price of North Sea Brent crude is now only 2 per cent below its all-time peak, set shortly before the Lehman collapse in 2008. Refiners already appear to be switching into Russian oil, which is similar to Iranian oil.
Inflation that comes from restrictions of supply like this is not healthy for the economy. In the short run it is inflationary, as oil prices are in inflation indices. In the long run it is deflationary, as high oil prices weigh on spending.
Another source of inflation is deliberate. Central banks in the west want inflation, so they are injecting money into the system, typically by buying government bonds (known as quantitative easing). The Bank of England is doing this; the Bank of Japan announced this week that it was doing the same; the US Federal Reserve is expected to do more over the next few months; and the eurozone crisis is easing chiefly because the European Central Bank is offering banks money on phenomenally cheap terms. All of these measures tend to create inflation.
There are good reasons for this. The Fed, in particular, assumes that deflation is a greater danger than inflation. After all, it makes historic debts even more expensive to pay off. Injecting money into the system also pushes up asset prices and makes everyone happier. And indeed, big expansions in central banks' balance sheets, from the Fed in the autumn of 2010 and the ECB in 2011, coincided with surges in equity and commodity prices.
But central banks do not operate in a vacuum and the money they create is fungible. Once created, it tends to find its way to wherever it will make the great return. So, in 1998, money to ease the financial system through the Long-Term Capital Management crisis helped inflate the tech bubble, and money to deal with the bursting tech bubble inflated the US housing bubble.
At present, money is likely to find its way to emerging markets. They are growing, and have higher interest rates. Brazilian government bonds yield more than 10 per cent. Park money there and little will go wrong.
Except emerging markets have an endemic inflation problem of their own, which forced many central banks to raise rates after the Fed's first wave of money-printing in 2009. Many now hope that emerging central banks will ease rate this year; but that grows less likely if flows of US money push up inflation again.
Higher rates in the emerging economies would in turn tend to choke off economic activity there. And that would be a shame because it is on emerging markets, led by China, that the world currently relies for its growth. In a global economy, it is hard for any one nation, even the US, to take actions that will not have a countermanding effect somewhere else in the world.
There is nothing new about any of this. In fact, the similarities with last year, when the Libyan situation drove oil prices upwards, while markets convinced themselves that the eurozone crisis was containable and feasted on easy money from the Fed, are very close. That ended badly.
The greatest difference is that the US seems to have much less need of the easy money - inflation expectations, at 1.5 per cent, were far lower before the last dose of quantitative easing and the economy is now showing its most promising signs of strength since Lehman.
But if the logic of last year still broadly holds, then there is every chance of a repeat. Developed countries, prone to deflation, will continue to export inflation to the emerging, which is already prone to it. This may not be the worst way of dealing with the overhang of debt left by the financial crisis but it does put a lid on hopes for a strong and sustained global recovery.
And Iran bears watching. Constrictions on the supply of natural resources have lost none of their power to throw a spanner in the economic works. from FT.
・Government bonds of US
・Government bonds of Brazil
・Brent
・WTI
2012/02/13
Choose equity if you live long
This is an article from FT.
A hedgehopper's guide to living with inflation
Keynes' legacy is up for debate these days but there is almost universal sympathy for his scornful views of the long run. His dictums that in the long run we are all dead, and that the market can stay irrational longer than you can stay solvent, are unarguably true.
For those young enough, there is safety in the very long term. But those too old to wait around need help to hedge against the risk that things go wrong in the short run.
Here, miming the long-run data can still help. This week saw the publication of two annual monumental studies of long-term securities returns: the Barclays Equity Gilts Study and the Credit Suisse Global Investment Returns Yearbook. Both go back more than a century and cover many countries.
Mining such data can help us to deal with short-run risks and both surveys this year attempted to do so. On balance, their findings are still somewhat depressing but the condensed wisdom of a century is still useful.
First, equities do outperform in the long run term but that long term can indeed be very long. In the US, since 1900, the longest anyone has had to wait to derive a positive real turn from stock is 17 years (manageable for most of us); but, in Italy, that figure is 74 years.
How should those with time to wait best harness this insight? The Credit Suisse data confirm that stocks outperform if they are smaller (US micro-cap companies have grown at 12.6 per cent a year since 1926, compared with 12 per cent for small-capitalisation companies and 9.5 per cent for larger companies); if they are cheaper (higher dividend yield stock have risen at 10.9 per cent a year in the UK since 1900, compared with 7.7 per cent for low yielders); and if they have momentum at their back. Stocks that are rising tend to keep rising, and laggards tend to keep lagging. Place trades that take advantage of these inefficiencies and you will be rewarded in the long run.
What about those who cannot wait? The bad news from the Barclays survey is that safety has never been so expensive. Long-term interest rates on US sovereign debt are not unprecedentedly low. The forwards market, which institutions use to lock in interest rates for the future, shows that markets expect 10-year bond yields to average almost exactly 1 per cent from 2022 to 2032. Only 30 years ago, these bonds yields as much as 15 per cent.
Plainly, the intervention by central banks to push down yields by buying bonds has much to do with this. But the Federal Reserve is promising to keep rates low until 2014; that cannot explain such confidence they will stay low from 2022 to 2032. Barclays suggests the main explanation is shortage of supply. Since the financial crisis struck, several assets have been struck off the list of "safe" assets, such as US mortgage agency debt, structured credit, and Spanish and Italian bonds. For those safe assets that remain, this pushes up the price, while pushing down the yield.
Bonds are historically expensive relative to stocks. But if this is because of a permanent constriction in the supply of safe assets, these is no particular reason to expect this to change; and, therefor, sadly, it does not imply that stocks are particularly cheap.
Bonds' coupons are fixed over time, so a low long-term bond yield usually implies confidence that inflation will not rise and eat into their purchasing power. But in these circumstances, low bond yields do not imply any great market belief that inflation is under control.
Indeed, of course, there is great fear of inflation. What can act as a hedge? These days, inflaiton-linked bonds are available. They are extremely expensive, offering a negative yields, but they will rise with inflation as long as the issuing government avoids default.
The Credit Suisse survey looked at other possible inflation hedges. The results, shown in the chart, are discouraging. Equities are badly affected by bouts of inflation but do at least outperform bonds. Housing is much less affected. Gold is as close to an inflation hedge as the authors find out even here gold's performance in the long term is erratic. As its real (inflation-adjusted) price has differed substantially over time, it cannot be regarded as a good hedge.
For the short term, then, the long term has depressingly little encouragement. Safety is in short supply and expensive; stocks are not as cheap as they look and hedging against the risk of resurgent inflation in the future is very difficult.
It is best, for those who can, to hunker down in well-chosen equities for the longer term. For those who cannot, diversify as much as possible. from FT
A hedgehopper's guide to living with inflation
Keynes' legacy is up for debate these days but there is almost universal sympathy for his scornful views of the long run. His dictums that in the long run we are all dead, and that the market can stay irrational longer than you can stay solvent, are unarguably true.
For those young enough, there is safety in the very long term. But those too old to wait around need help to hedge against the risk that things go wrong in the short run.
Here, miming the long-run data can still help. This week saw the publication of two annual monumental studies of long-term securities returns: the Barclays Equity Gilts Study and the Credit Suisse Global Investment Returns Yearbook. Both go back more than a century and cover many countries.
Mining such data can help us to deal with short-run risks and both surveys this year attempted to do so. On balance, their findings are still somewhat depressing but the condensed wisdom of a century is still useful.
First, equities do outperform in the long run term but that long term can indeed be very long. In the US, since 1900, the longest anyone has had to wait to derive a positive real turn from stock is 17 years (manageable for most of us); but, in Italy, that figure is 74 years.
How should those with time to wait best harness this insight? The Credit Suisse data confirm that stocks outperform if they are smaller (US micro-cap companies have grown at 12.6 per cent a year since 1926, compared with 12 per cent for small-capitalisation companies and 9.5 per cent for larger companies); if they are cheaper (higher dividend yield stock have risen at 10.9 per cent a year in the UK since 1900, compared with 7.7 per cent for low yielders); and if they have momentum at their back. Stocks that are rising tend to keep rising, and laggards tend to keep lagging. Place trades that take advantage of these inefficiencies and you will be rewarded in the long run.
What about those who cannot wait? The bad news from the Barclays survey is that safety has never been so expensive. Long-term interest rates on US sovereign debt are not unprecedentedly low. The forwards market, which institutions use to lock in interest rates for the future, shows that markets expect 10-year bond yields to average almost exactly 1 per cent from 2022 to 2032. Only 30 years ago, these bonds yields as much as 15 per cent.
Plainly, the intervention by central banks to push down yields by buying bonds has much to do with this. But the Federal Reserve is promising to keep rates low until 2014; that cannot explain such confidence they will stay low from 2022 to 2032. Barclays suggests the main explanation is shortage of supply. Since the financial crisis struck, several assets have been struck off the list of "safe" assets, such as US mortgage agency debt, structured credit, and Spanish and Italian bonds. For those safe assets that remain, this pushes up the price, while pushing down the yield.
Bonds are historically expensive relative to stocks. But if this is because of a permanent constriction in the supply of safe assets, these is no particular reason to expect this to change; and, therefor, sadly, it does not imply that stocks are particularly cheap.
Bonds' coupons are fixed over time, so a low long-term bond yield usually implies confidence that inflation will not rise and eat into their purchasing power. But in these circumstances, low bond yields do not imply any great market belief that inflation is under control.
Indeed, of course, there is great fear of inflation. What can act as a hedge? These days, inflaiton-linked bonds are available. They are extremely expensive, offering a negative yields, but they will rise with inflation as long as the issuing government avoids default.
The Credit Suisse survey looked at other possible inflation hedges. The results, shown in the chart, are discouraging. Equities are badly affected by bouts of inflation but do at least outperform bonds. Housing is much less affected. Gold is as close to an inflation hedge as the authors find out even here gold's performance in the long term is erratic. As its real (inflation-adjusted) price has differed substantially over time, it cannot be regarded as a good hedge.
For the short term, then, the long term has depressingly little encouragement. Safety is in short supply and expensive; stocks are not as cheap as they look and hedging against the risk of resurgent inflation in the future is very difficult.
It is best, for those who can, to hunker down in well-chosen equities for the longer term. For those who cannot, diversify as much as possible. from FT
2012/02/05
ザ・スミスとマーケット
When good news is good news and so is bad news
I was looking for a job and then I found a job,
And heaven knows I'm miserable now.
-The Smiths, 1984
Sometimes it's heads I win, tails I win. The stock market rally of the past two months is real, and unmistakably being treated as such. The S&P 500 was yesterday up 25 per cent from its lowest point in October, satisfying the usual definition of a bull market. Mergers and acquisitions are starting to return after a long gap.
But this rally has been driven by two forces that tend to cancel each other out. One is the promise of easy money from central banks, which is often on hand to stave off a crisis or to jolt an economy out of a slump. The other is the belief that economies are faring better - which implies that markets are less likely to get their dose of easy money.
For this reason, markets often have a Smiths-like lugubrious reaction to positive economic news. But now markets are plugging in to an altogether trippier mode. It might even be possible, thanks to the way that European and US economic cycles have drifted apart, to have the best of both worlds; easier money in Europe and economic growth in the US.
US unemployment data are notoriously unreliable. But the January data, which saw 230,000 Americans join non-farm payrolls, while the unemployment rate fell to 8.3 per cent (it reached 10 per cent in 2009), cannot be explained away. Employment is expanding.
That makes the Federal Reserve less likely to resort to further quantitative easing (buying Treasury bonds to push down their yields and thereby lower interest rates for the economy as a whole). But risky assets are still doing well, perhaps because of optimism about Europe.
All is not well on the eurozone's periphery. Portuguese government bond yields surged to much the same levels that forced Greece to ask the EU for a second bail-out last year. Talks over how much of a hit banks should take in Greece's likely default next month have dragged on. And a European Central Bank report this week suggested an incipient credit crunch as banks tightened their lending standards.
And yet the mood surrounding Italy and Spain is upbeat. Anyone who bought the two countries' bonds when concern about the eurozone was at its most intense, in November last year, has made 20 per cent since then. Meanwhile, eurozone bank stocks are up 36 per cent since then.
The explanation takes only four letters: LTRO (long-term refinancing operation). It refers to the European Central Bank's offer to let banks borrow from it for three years using very generous collateral. When unveiled by Mario Draghi, the incoming ECB president, late last year, many were disappointed that he was not buying government bonds directly.
But now, traders believe the move cuts any risk of a "Lehman moment" drastically. In other words, if a European sovereign default was to happen, the chance of a cascading bank collapse in response is much reduced. And the total assets on the ECB's balance sheet have leapt by 44 per cent in six months. Maybe it will now resort to printing money. The short-term implications would be good for European banks.
To explain this rally using history, there are two decent recent parallels. In 2010, the first Greek bail-out and some insipid US economic data caused stocks and commodities to sell off. That was arrested in August of that year when Ben Bernanke of the Federal Reserve signalled that more quantitative easing was on the way.
Twice since 2008, in the springs of 2010 and 2011, US monthly jobs growth has exceeded 230,000. Both times it went on to fizzle. That fits the notion that after a financial crisis the economy is doomed to move sideways. Growth shifts in response to shifts in monetary policy.
A second analogy is more troublesome. After the meltdown of the Long-Term Capital Management hedge fund in 1998, which brought global credit markets to a standstill, there was a dramatic rally once the Federal Reserve decided to cut rates.
Traders believed this proved that central bank money would always be there to bail out ailing financial groups. The LTCM template was followed several times in the years before the Lehman disaster - for example, Fed intervention sparked rallies after the crises for Countrywide Financial in 2007 and Bear Sterns in early 2008.
At the moment, markets in Europe seem to be following the LTCM pattern. Having pushed up Italian and Spanish yields to unbearable levels, they have forced the ECB to act. Now they can party.
This is dangerous, even if it is more cheerful than listening to the Smiths. But the resumption of growth in the US, and the successful crisis management by the ECB, have bought much time for politicians to try to deal with the deeper problems of the eurozone. Let's hope they use it. from FT
I was looking for a job and then I found a job,
And heaven knows I'm miserable now.
-The Smiths, 1984
Sometimes it's heads I win, tails I win. The stock market rally of the past two months is real, and unmistakably being treated as such. The S&P 500 was yesterday up 25 per cent from its lowest point in October, satisfying the usual definition of a bull market. Mergers and acquisitions are starting to return after a long gap.
But this rally has been driven by two forces that tend to cancel each other out. One is the promise of easy money from central banks, which is often on hand to stave off a crisis or to jolt an economy out of a slump. The other is the belief that economies are faring better - which implies that markets are less likely to get their dose of easy money.
For this reason, markets often have a Smiths-like lugubrious reaction to positive economic news. But now markets are plugging in to an altogether trippier mode. It might even be possible, thanks to the way that European and US economic cycles have drifted apart, to have the best of both worlds; easier money in Europe and economic growth in the US.
US unemployment data are notoriously unreliable. But the January data, which saw 230,000 Americans join non-farm payrolls, while the unemployment rate fell to 8.3 per cent (it reached 10 per cent in 2009), cannot be explained away. Employment is expanding.
That makes the Federal Reserve less likely to resort to further quantitative easing (buying Treasury bonds to push down their yields and thereby lower interest rates for the economy as a whole). But risky assets are still doing well, perhaps because of optimism about Europe.
All is not well on the eurozone's periphery. Portuguese government bond yields surged to much the same levels that forced Greece to ask the EU for a second bail-out last year. Talks over how much of a hit banks should take in Greece's likely default next month have dragged on. And a European Central Bank report this week suggested an incipient credit crunch as banks tightened their lending standards.
And yet the mood surrounding Italy and Spain is upbeat. Anyone who bought the two countries' bonds when concern about the eurozone was at its most intense, in November last year, has made 20 per cent since then. Meanwhile, eurozone bank stocks are up 36 per cent since then.
The explanation takes only four letters: LTRO (long-term refinancing operation). It refers to the European Central Bank's offer to let banks borrow from it for three years using very generous collateral. When unveiled by Mario Draghi, the incoming ECB president, late last year, many were disappointed that he was not buying government bonds directly.
But now, traders believe the move cuts any risk of a "Lehman moment" drastically. In other words, if a European sovereign default was to happen, the chance of a cascading bank collapse in response is much reduced. And the total assets on the ECB's balance sheet have leapt by 44 per cent in six months. Maybe it will now resort to printing money. The short-term implications would be good for European banks.
To explain this rally using history, there are two decent recent parallels. In 2010, the first Greek bail-out and some insipid US economic data caused stocks and commodities to sell off. That was arrested in August of that year when Ben Bernanke of the Federal Reserve signalled that more quantitative easing was on the way.
Twice since 2008, in the springs of 2010 and 2011, US monthly jobs growth has exceeded 230,000. Both times it went on to fizzle. That fits the notion that after a financial crisis the economy is doomed to move sideways. Growth shifts in response to shifts in monetary policy.
A second analogy is more troublesome. After the meltdown of the Long-Term Capital Management hedge fund in 1998, which brought global credit markets to a standstill, there was a dramatic rally once the Federal Reserve decided to cut rates.
Traders believed this proved that central bank money would always be there to bail out ailing financial groups. The LTCM template was followed several times in the years before the Lehman disaster - for example, Fed intervention sparked rallies after the crises for Countrywide Financial in 2007 and Bear Sterns in early 2008.
At the moment, markets in Europe seem to be following the LTCM pattern. Having pushed up Italian and Spanish yields to unbearable levels, they have forced the ECB to act. Now they can party.
This is dangerous, even if it is more cheerful than listening to the Smiths. But the resumption of growth in the US, and the successful crisis management by the ECB, have bought much time for politicians to try to deal with the deeper problems of the eurozone. Let's hope they use it. from FT
2012/02/01
Cees Nooteboom on the Dutch city where centuries swirl in the twilight
I live in the oldest part of Amsterdam, on a street named after a red windmill, a windmill that's no longer there. On old maps, where the city is still small, a long line of windmills lies beyond what was then the outermost canal; maybe one of them was red. My house dates back to 1731 and stands between two canals. Amsterdam's a water city; you can see that as soon as you open up a map. The River Amstel winds voluptuously into the city from bottom right, flowing into a spider's web of canals, or grachten, to form a magical semicircle, and then on into the River IJ, part of the old Zuiderzee. The ships of the Dutch East India Company, the second multinational in history, would return from long voyages with their Asian and African wares, to moor where Centraal Station now stands.
That magical semicircle of canals traveling from water to water is the heart of Amsterdam. But how did that city begin? I once wrote a poem about it: Between sea and sea, / salt marshes / behind dykes of seaweed. / Water people, land makers, / black angels, / forefathers, gliding over mud flats. / They are the first. / They dream walls of driftwood / in the wandering river./ Ame, water. /Stelle, place of safety. / The name of their liquid / city.
They made dykes, a dam in the Amstel: Amstel-dam, Amsterdam. They pulled that city out of mud and water and, a few centuries later, the first monasteries came, the first markets, the first ships. A few more centuries and the city on the IJ and the Amstel was a world metropolis, rich and powerful. Hundreds of ships anchored there, transferring their cargo onto smaller boats, which sailed into the city on an inland waterway that is both a labyrinth and an image of the highest order. The innermost circle, Singel, was once a defensive barrier against water and enemies. Then the second canal was dug, Herengracht, the gentlemen's canal, its name evidence of a new and assertive bourgeoisie. The princes and emperors came along later, in Prinsengracht and Keizersgracht, which are intersected by so many smaller grachten: canals of the tanners, the brewers, but also of the lilies, the laurels, and the elk, for this city is a city of words, the realm of the poet. And that's what I always seek out whenever I return from a distant journey.
My plane from New York, once Nieuw Amsterdam, or from Jakarta, the Batavia of a colonial past, has landed early. It's a misty autumn morning and I don't want to sleep yet; I want to be out among the words of my city. Only a few steps from home, I walk across a narrow footbridge, the Milkmaids' Bridge, and think of Vermeer. Then, as I head down the Brewers' Canal, Nooteboom's Law comes into effect: spend a day walking around Amsterdam and by the evening you'll have seen just about everyone who crossed your mind when you were so far away, and you'll be up to date with everything that matters in this small cosmos. I walk past houses with dates and pictures on their gable stones; everything here suggests an eventful past, but without cloying nostalgia.
My local bar, a dark living room, is called Papeneiland, Papists' Island, and it was a Catholic enclave back in the 17th century. It's where I go to find the people who are not my family even though that's how it feels. A recent addition is a letter on the wall from Bill Clinton, praising the owner for his delicious apple pie. The president's visit was completely unexpected, but everyone left him to enjoy his pie in peace, and the warmth of his letter shows that he appreciated how Amsterdam bars work; you're in someone's living room and if you act naturally, you'll find yourself among friends.
At the end of my day, I walk my poem to the beat of my feet, down a narrow alleyway called Prayer Without End (the site of a nunnery in the 14th century), through streets with names like Herring Sheds and Piggy-Bank Lane, and when I finally return home, I can feel the centuries swirling around my head, together with the light of this city on the water, the light you see in paintings from the Golden Age, a light that is found in no other place. from Newsweek
That magical semicircle of canals traveling from water to water is the heart of Amsterdam. But how did that city begin? I once wrote a poem about it: Between sea and sea, / salt marshes / behind dykes of seaweed. / Water people, land makers, / black angels, / forefathers, gliding over mud flats. / They are the first. / They dream walls of driftwood / in the wandering river./ Ame, water. /Stelle, place of safety. / The name of their liquid / city.
They made dykes, a dam in the Amstel: Amstel-dam, Amsterdam. They pulled that city out of mud and water and, a few centuries later, the first monasteries came, the first markets, the first ships. A few more centuries and the city on the IJ and the Amstel was a world metropolis, rich and powerful. Hundreds of ships anchored there, transferring their cargo onto smaller boats, which sailed into the city on an inland waterway that is both a labyrinth and an image of the highest order. The innermost circle, Singel, was once a defensive barrier against water and enemies. Then the second canal was dug, Herengracht, the gentlemen's canal, its name evidence of a new and assertive bourgeoisie. The princes and emperors came along later, in Prinsengracht and Keizersgracht, which are intersected by so many smaller grachten: canals of the tanners, the brewers, but also of the lilies, the laurels, and the elk, for this city is a city of words, the realm of the poet. And that's what I always seek out whenever I return from a distant journey.
My plane from New York, once Nieuw Amsterdam, or from Jakarta, the Batavia of a colonial past, has landed early. It's a misty autumn morning and I don't want to sleep yet; I want to be out among the words of my city. Only a few steps from home, I walk across a narrow footbridge, the Milkmaids' Bridge, and think of Vermeer. Then, as I head down the Brewers' Canal, Nooteboom's Law comes into effect: spend a day walking around Amsterdam and by the evening you'll have seen just about everyone who crossed your mind when you were so far away, and you'll be up to date with everything that matters in this small cosmos. I walk past houses with dates and pictures on their gable stones; everything here suggests an eventful past, but without cloying nostalgia.
My local bar, a dark living room, is called Papeneiland, Papists' Island, and it was a Catholic enclave back in the 17th century. It's where I go to find the people who are not my family even though that's how it feels. A recent addition is a letter on the wall from Bill Clinton, praising the owner for his delicious apple pie. The president's visit was completely unexpected, but everyone left him to enjoy his pie in peace, and the warmth of his letter shows that he appreciated how Amsterdam bars work; you're in someone's living room and if you act naturally, you'll find yourself among friends.
At the end of my day, I walk my poem to the beat of my feet, down a narrow alleyway called Prayer Without End (the site of a nunnery in the 14th century), through streets with names like Herring Sheds and Piggy-Bank Lane, and when I finally return home, I can feel the centuries swirling around my head, together with the light of this city on the water, the light you see in paintings from the Golden Age, a light that is found in no other place. from Newsweek
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