The Reverse Snowball
The benchmark five year gilt yield fell to a new low of 1.43% last Thursday, which amazingly takes it to a 25 basis point discount to that of its German bund counterpart. The UK government would like to think the record lows to which gilt yields have sunk are a vote of confidence by international investors in its plans for fiscal consolidation and no doubt there is some element of truth in this tale. What is almost certainly more accurate is that there is a scary bond bubble developing that belies the basic economic reality. By whatever means the low yields on gilts are achieved, however, it matters a lot - and it surprises me that the government doesn't make a lot more noise about it.
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Basel Faulty
First Deutsche Bank, now Standard Chartered. Soon they will all be at it. One by one, banks are starting to move to pre-empt the imposition of tougher capital rules by raising new equity from investors. With equity markets at or near 6 month highs the timing for raising new equity seems like a reasonable one. At some point the flood gates will open up, so getting your piece of the action early in the process makes sense.
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Stick it to them…
I'm going to start this weeks blog with a bit of Economics 1.01, partly to show that even the most basic of accepted Economic principles fails when it has the misfortune to clash with the world of reality.
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Currency wars
On the front page of the Irish Times website this week there has been a continuous stream of adverts which could be part of a broader plan to help Ireland escape its economic tornado. "Make 8% - 14% per annum. Brazil Eucalytus Plantations. Government backed. Secure Investments." I can only assume that this is Ireland's contribution to an attempt to devalue the Euro as part of the broader goal of increasing its export competitiveness.
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