Global Central Bank Focus
Must read by sharp minds at PIMCO.
- Today, the Federal Reserve itself faces an “unusually uncertain” period because it lacks a complete understanding of the potential side effects of its unconventional policy actions; in particular the elongated timeline of its zero interest rate policy and its massive money printing.
- What matters in shaping market expectations about inflation and deflation are the credibility of fiscal policy, the prospect for real economic growth and the central bank’s commitment to step back from the punch bowl.
- For the time being, major central banks are putting off the tradeoff between addressing high economic leverage as measured by debt-to-GDP and potentially developing structurally higher inflation expectations for the benefit of jumpstarting their economies.
- As EM central bank reaction functions shift away from inflation targeting to a more hazy combination of growth/exchange rate/inflation targeting, there is a real risk that transparency in monetary policy becomes compromised. The likelihood of forecasting errors becomes amplified with a greater chance of missing policy targets.
Full article here.
Spanish property market Imploding
Spain is reaching that “when it rains…” moment. Unemployment is taking out new highs, PMI is falling off the cliff, the new PMs honeymoon is over and the property collapse is about to happen. Prices have come off from their highs, but it is not until this year we can expect the real downturn as the banks are forced to start hitting the market with their inventories of empty properties. If you think the US had a bubble, Spain is much worse. The big elephant in the European room is in motion. From Bloomberg.
Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings.
Home prices will decline 12 percent to 14 percent, according to research and advisory company R.R. de Acuna & Asociados, after Economy Minister Luis de Guindos in February gave lenders two years to make 50 billion euros ($67 billion) of additional provisions and capital charges for losses linked to real estate. That’s the most since the National Statistics Institute started tracking values in 2007. Standard & Poor’s forecasts borrowers with negative equity may rise to 25 percent this year from 8 percent in 2010, based on an analysis of 800,000 mortgages.
Risk Off as markets collapse on European Fear
As Europe collapses, without Panic (this is disturbing), under the HFT Regime no volume melt down, other asset classes are joining the Implosion. Markets are moving on light volume, driven by fear, as now every pundit sees Europe on the verge of a collapse. Maybe it is time to start buying small? Note, Stoxx 50 was up 70% from bottom to top, and has now retraced some 36% from the highs, set onkly a few months ago. Majority of investors are now down big time, as the group didn’t buy the bottom…
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