Friday , November 22 2019
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Sober Look
Sober Look is a no-hype financial blog that relies on data analysis and primary sources. Posts are intended to be succinct, to the point, with no self-promoting nonsense, and no long-winded opinions. If you are looking for Armageddon predictions or conspiracy theories, you will be thoroughly disappointed. Topics include U.S. and global economic developments and financial markets. We often cover asset management, energy/commodities markets, derivatives, regulation, and policy - with a particular focus on capital markets and financial risk.

Soberlook

Why Won’t the Fed Raise Rates?

Guest post by Norman Mogil When the Federal Reserve's Open Market Committee (FOMC) meets in the coming week, there will be pressure from various quarters to raise the federal funds rate. Jamie Dimon, chairman of JP Morgan, has stated blankly “Let’s just raise rates."  Furthermore, he has said a quarter point is just a “drop in the bucket."  We know where the big money banks stand on the issue. They need higher rates to achieve better profit margins. But even from other...

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The ECB’s corporate bond purchase programme takes shape

Guest post by Marcello MinennaWith the awaited decision of August 4, even the Bank of England has put aside any delay and has steered towards an aggressive expansionary monetary policy to contrast the recessionary pressures due to the Brexit shock on market expectations. Apart from the expected interest rate cut of 25 basis points, different unconventional measures stand out: a 6-months resumption of the government bonds (Gilts) buying programme for a monthly amount of $ 60 billion, to be...

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What is Behind the Surge in the Corporate Debt

Guest post by Norman MogilJust as governments are cutting back on issuing new debt, the corporate sector has taken up the role of being the largest source of new debt in the United States. This shift in debt issuance is readily apparent in Chart 1. Since the crisis of 2008, the growth in government debt has dramatically decreased from nearly 20 per cent annually to less than 5 per cent, more in line with the nominal growth in the economy. Consumers continue to remain wary of increasing their...

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The Big Disconnect in the Pension Industry

Guest post by Norman Mogil When two of the biggest US pension funds reported very disappointing financial results this month,  it became apparent that the pension industry needs a reality check. For the past fiscal year the California Public Employees’ Retirement System earned a merger return of 0.6 percent on its investments; the California State Teachers' Retirement System did only marginal better, clocking an investment return of 1.4 percent. Both funds had a target rate of return 7.5...

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The Looming Shortage in Government Bonds

Guest post by Norman Mogil Ever since the 2008 financial crisis, there has been a persistent shortage of high-quality government debt. More than just a safe haven in times of financial stress--- the so-called 'flight to quality' --   the supply of  high- quality sovereign debt has been steadily shrinking. This shortage became acutely apparent with the results of the Brexit referendum as investors worldwide bid up bond prices to the point where most long term bond yields reached historic lows...

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What the Bond Market is Telling Investors

Guest post by Norman Mogil Over the past month, the global bond markets have been sending out signals that all is not well with the global economies. Initially, the surge in negative nominal rates in Europe and Japan rattled many investors in both the fixed income and equities markets. This historic development suggests that large-scale investors are anticipating low growth and disinflation for many more years. Simultaneously,  the yield curve, especially in the US, has been flattening,...

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The fall in commodity prices hits the Canadian banks

Guest post by Norman Mogil With the release of Canadian banks’ second-quarter results, investors are beginning to measure the impact of the oil price collapse on the domestic financial industry. Widespread are the write-downs and other provisions the banks are taking in response to the weakened credit quality of many clients in the oil patch. This blog looks at this issue and its implications for future bank stock performance. On the whole, the Canadian banks turned in a profitable...

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US labor markets take a turn for the worse

Friday's US payrolls report, which to a large extent represents a latent effect of the US dollar rally over the past couple of years, was dismal. On a relative basis, hiring Americans has become more expensive for global firms. An elevated level of uncertainty, driven in part by risks associated with the US monetary policy as well as the presidential elections, has not helped. Let's look at some trends in the labor markets. 1. The job market's weakness has now spread to the services...

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The Decline in Canadian Business Investment

Guest post by Norman Mogil Business Investment  “depends on the prospective yield of capital, and not merely on its current yield” , John Maynard Keynes One of the many puzzles of the recovery since the 2008 crisis has been the corporate sector’s reluctance to add to a nation’s capital stock. Investment in new plant and equipment along with the construction of new productive facilities has lagged behind the experience of previous recoveries. Throughout the industrialized world, the rate...

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