Hungary Monetary Policy: Central Bank Cuts Key Rate to 6.5% in November

• Hungary’s central bank (MNB) cut its benchmark interest rate 50 basis points (bp) to 6.5% on November 23, 2009. An improved inflation outlook and the ongoing deep recession were the main factors determining the monetary policy direction. Policymakers have cut interest rates by 300 basis points since July. At the November meeting, the MNB widened the corridor for the overnight rate to +/-100bp from the previous +/-50bp. According to Danske Bank, „this should could reduce carry on long forint positions and hence curb inflows into the Hungarian markets.“ 

How Confident are German Businesses of a Sustainable Economic Recovery?

On November 24, 2009, the economic research institute Ifo announced a further improvement in German business confidence. According to the survey, which is based on 7,000 executives, business confidence reached a 15-month high of 93.9 in November 2009. Despite eight consecutive increases since April 2009, the index is still below its long-term average of 96 points, and the rate of increase has been slowing down in the recent months. While the survey results point to economic expansion in the second half of 2009, the question remains how sustainable the upswing will prove thereafter.

Government Debt Spirals

John Mauldin: „Outside the Box“ I have been writing about sovereign debt risk for some time. Japan, Spain, Italy and Portugal are all facing serious fiscal deficits and funding problems within a few years. But Greece may be the first country to hit the wall. In today’s Outside the Box, we look at a short column by Ambrose Evans-Pritchard of the London Telegraph on the problems facing Greece. Greece will soon be faced with deciding which bad choice to make among a very small set of really bad, difficult choices.And then we turn to a piece by Edmund Andrews in the New York Times about the funding problem facing the US. The US is going to have to borrow at a minimum $3.5 trillion in the next three years according to Obama administration officials, and it is likely to be much higher. And rates are likely to be rising. As Andrews notes „Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year.“ If interest rates were at the same level as a few years ago, interest costs on the debt this year would be $221 billion more than they actually were.We are not yet Greece or Japan. But we are working on it given the current direction. At some point the bond market is not going to „go along“ for the ride. Read these pieces and think about them. As I often write, if something cannot happen then it won’t. Greece cannot go along the same path they are on. While today we are blithely ignoring the debt problem, the US cannot continue with massive deficits without serious consequences.

Zukunftslabor 2 des Arbeitskreises in Salzburg – Die Ergebnisse

Dienstag, 24. November 2009

Wir danken über 200 Gästen von Kärnten bis Stuttgart für ihre Aufmerksamkeit und Ermutigung.

Anbei die Präsentation. FBK Zukunftslabor 2 Finanzwirtschaft 3_final blog_24-11-09

Mergers & Acquisitions: Is Deal Volume About to Pick Up?

• According to Dealogic, U.S. M&A activity has boomed in November 2009 with 41 announced  deals worth US$47.5 billion in comparison to 575 deals worth US$19.8 billion in November 2008. November deals outpaced October’s value in the first few days, as there were 522 deals worth US$29.8 billion. Total year-to-date volume has been 5,786 U.S. deals worth US$619.8 billion.  (Wall Street Journal) 

Is Another Bubble in the Making? Could Central Banks Lose Control?

Bill Gross of PIMCO: „Moving out on the risk asset spectrum has worked wonders since March of this year, but it comes with the risk of principal loss – failing to receive the return of your money. China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland. With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside – higher Treasury yields, and lower stock prices – which the Fed must surely be leery of before making any upward move, of its own. Policy makers recognize that asset prices must be supported in order to generate positive future nominal GDP growth somewhere close to historical norms. Investors must recognize that if assets appreciate with nominal GDP, a 4–5% return is about all they can expect even with abnormally low policy rates.“  In order to avoid debt deflation in the real economy, nominal GDP must grow in the 4%-6% range.

Role reversal

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November 22, 2009, 5:49 am Paul Krugman

Many people on Wall Street are now warning that there’s a huge bubble in government debt, that interest rates will spike any day now; it’s a warning that clearly has the Obama administration’s ear. A good sample is this piece from Morgan Stanley, according to which “Our US economics team expects bond yields to rise to 5.5% by the end of 2010 – an increase of 220bp that outstrips the 137bp increase in the fed funds rate expected over the same horizon.”

Btw: what? Almost everyone expects unemployment in late 2010 to remain close to 10%. Why, exactly, would the Fed funds rate rise sharply?

Anyway, I was wondering: it’s my impression that the same people now warning about the alleged Treasury bubble dismissed warnings about the housing bubble. Is this true?

Euro Ambitions in the Baltics: Is Estonia a Case Apart?

The global financial crisis will likely delay Latvia and Lithuania’s entry to the EMU. Estonia, however, is still on track for 2011 eurozone entry. ECB policymaker Gertrude Tumpel-Gugerell has suggested that pushing forward on euro adoption without meeting the Maastricht criteria is no cure-all for Baltics’ economic woes. Tumpel-Gugerell said that „during the global financial crisis, it became apparent that the euro has been an important shelter for the euro area countries to protect them against what otherwise may have resulted in an exchange rate and balance of payments crisis. This led to the widespread perception that the euro area is a safe haven.“

Just How Much of a Eurozone Rebound Really Was There in Q3?

Edward Hugh | Nov 17, 2009

Sorry, and I apologise in advance: in this post I’m going to be a nit-picker. The question in hand is the Eurozone third quarter growth one, and the story is all about differences (between countries) and these differences in the key cases (France and Germany) are in many ways all about inventories. So maybe I should have titled the post „all about inventories“, following Pedro Almodovar’s cinematographic lead in cycling and recycling that old „all about Eve“ metaphor – necessity is the mother of invention, and movements in inventories are progenitors of both growth, and of that notorious double dip difficulty. So just which one of these is it that we have on our hands here?

10 Years Later, a Much Less Expensive Dow 10,000

November 15, 2009, NYT

By PAUL J. LIM

 

INVESTORS may take some comfort now that the Dow Jones industrial average is back above 10,000 after slipping to around 9,700 at the end of October.

But the return to 10,000 also serves as a bitter reminder that stocks have gone virtually nowhere, on balance, for more than a decade. It was in March 1999 that the Dow first climbed above 10,000, before soaring as high as 14,164 two years ago and plummeting as low as 6,547 this past March.