Where did Canada, Spain and Mexico go...
Where did Canada, Spain and Mexico go...
“We have this imminent bond-buying by the ECB -- at least that’s what everybody is expecting -- and if euro-zone yields are falling that makes Treasury yields relatively attractive, even at these rates,” said Philip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands.(link)The current state of play for selected sovereign 10 year bonds (with a minor highlight added to the FT graphic):
Reporters Without Frontiers produced this report for 2014 on the dangers of practicing their metier around the globe. France joined the top 5 yesterday on a dark, dark day and in a shockingly dreadful manner.
Nice little graphic from the US Global Investors website:
Someone took the trouble to quantify what most owners of small French business structures (ie under 250 employees) have known for a long time: they are getting a seriously bad deal compared to, erm, just about every peer one can think of.
The following table comes from the Vernimmen site (Letter 128, December 2014) and compares a business reporting the same numbers (ie turnover of €20m) in France as compared to Germany:
...but a little bit helps.
If your browser does not display the graphic the full article is here.
Two competing – but sometimes overlapping – approaches to relative value / pairs
trading are to take either a fundamental ‘signal’ view based on changes
to factors such as the accounts, the economy, the CFO’s penchant for
recognizing revenue early and so on; and the ‘noise’ approach whereby
the trader concentrates on the divergence in value of the instruments
for reasons unrelated to changes in fundamental conditions.
Bloomberg occasionally publish pairs trading ideas in the first category. Like this one for HCN/SPG. One reading suggests that it is really a macroeconomic call using the pair as a proxy and the 10 year bond yield as a trigger.
Should pragmatism be a consideration, you may wonder how to avoid over-reliance on those analysts forecasts and GDP predictions cited when applying this idea (see prior blog or this from Larry Summers for why this might be a concern). Even the yield differential heralded as an advantage depends on how the trade is set up - money neutral vs beta neutral for example - thus potentially mitigating the joy of the headline.
But onto the history. Taking the 2001 and 2007 recessions as precedents, as the piece does, the trade would have made 16% over 8 months and 35% over 18 months respectively (on a dollar neutral basis). Outside of those rather difficult-to-time periods SPG has outperformed HCN by a wide margin since 2002 (this is shown on the Indexed Prices & Spread graph below).
Three econometricians are out hunting. They spot a stag. Given this is a story about economists let us assume it is a deaf stag.
The first econometrician aims, fires but misses to the left by a metre. The second econometrician takes aim, fires and also misses - but by a metre to the right.
The third econometrician does not take aim or fire. Exultant, he cries out "Nailed it!"
Visually this joke appears thus:
This from Goldman Sachs' Top of Mind Global Macro Research report of 25 Jun, 2014:
If only Mr. Rogoff had waited a couple of weeks before reviewing Mr. Piketty's opus here the result might have been far more entertaining (as well as thought-provoking).
Why? Mr. Piketty got the R&R treatment from the FT this week (right here, you may have to register to see). Some of the criticism is about data sources; some is about data adjustments; and some concerns data selection. But the underlying question is about the combination of these and their subsequent interpretation.
The New York Times captures that last point when commenting on this graphic from the FT piece written by their economics editor, Chris Giles:
Speaking of Britain, for example, Mr. Giles writes, “There seems to be little consistent evidence of any upward trend in wealth inequality of the top 1 percent.” He further writes that if one incorporates the different British data into numbers for Europe as a whole, and weights by population instead of weighting Britain, France and Sweden equally, “there is no sign that wealth inequality in Europe is rising again.”
That is a damning conclusion, and if it holds up to scrutiny, would significantly undermine the case Mr. Piketty mounts. But Mr. Giles himself writes that “while this post is clear about what is wrong with Piketty’s charts, it is much less certain about the truth.”
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- JM Keynes, The General Theory of Employment, Interest and Money, 1936. I forget which page.