Recent Posts

Tuesday, June 28, 2016

Another Example Why Bond Investors Ignore Developed Sovereign Credit Ratings

Fitch and Standard & Poor's both downgraded the U.K. to AA (from AAA) this week in response to the Brexit vote (politico.eu article). As experienced market watchers would expect, U.K. gilts have been rallying (yields falling), which is not the usual narrative that one hears about ratings actions. This article explains why bond investors treat credit ratings for free-floating developed sovereign governments as sources of entertainment, and not investment guidance.


Sunday, June 26, 2016

Brexit - A Cautious Panic

For those of us outside the United Kingdom, the "Leave" victory in the referendum is not enough to cause worries about the real economy. We have entered the thin summer market period, so some form of financial turbulence is likely, but until some defaults occur it is not going to matter for non-levered investors. For the U.K., the most likely outcome is going to be an extremely long period of technical negotiations, which will eventually be pushed out of the news cycle by news about the Royal Family and football.

Friday, June 24, 2016

How To Deal With Imported Inflation...

Chart: Effect Of VAT Changes On UK Inflation

Although I should be enjoying the Fête Nationale du Québec, I just wanted to update the chart above. I first used it in this article, which discussed U.K. inflation. The point is that VAT changes can have a very large one-shot effect on inflation, and at an order of magnitude similar to the effect of currency changes.

Re: Brexit


I added some extra comments to my Brexit article; I will wait for the dust to settle before writing anything longer. In any event, it's a holiday here in Québec today...

Wednesday, June 22, 2016

Pragmatism And MMT

There has been a certain amount of introspection in the Modern Monetary Theory (MMT) online community recent, revolving around philosophy. As I was recently admonished, the way forward is pragmatism -- focus on areas where the theory actually makes a practical difference.

Sunday, June 19, 2016

Book Review - Economics Rules

The book Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik is aimed at a wide audience, and explains how economists look at the world. What works, and what does not. For non-economists, the discussion is at an understandable level, and hard to argue with. However, the book can be viewed as an apology for the state of mainstream economics, and this aspect is probably much less convincing for advanced readers.

Saturday, June 18, 2016

Brexit Analysis (Why I Avoided It)

The United Kingdom is holding a referendum with regards to European Union membership on June 23rd (link to BBC explainer).  This  brief article explains in point form why I have largely avoided the topic. (UPDATE: Based on the results, I probably should have kept avoiding the topic...) I will return to the consequences of the vote once the dust settles.