First Impressions

A Krugman Conundrum: Beware the single metric
Doug Ashburn, John Lothian News

In today’s newsletter, the austerity debate again rears its head, this time in the form of a blog entry by economic heavyweight Paul Krugman. Dr. Krugman, a leading advocate of stimulus, stimulus and more stimulus to combat the economic ills of the past five years, has gone to great lengths to shout down any who advocate austerity as the path forward.

Over the weekend, Krugman published a short opinion piece, accompanied by a single graph, that calls into question whether Germany has truly achieved economic strength amid austerity. His graph features a single metric, change in structural balance as a percent of GDP from 2009-2013, and concludes that German austerity is a myth. “Public service announcement,” says Krugman, “Never, ever make claims about a country’s economic policies (or actually anything about economics) on the basis of what you think you’ve heard people say.”

Public service announcement, Dr. Krugman, it is dangerous to use any single metric to make your point. It is especially problematic when the single metric is misleading and incomplete.

To read the rest of this piece, please visit the JLN Blog at http://jlne.ws/1ptmsOK

 

Quote of the Day

“Under the current circumstances, a multi-year IMF programme supported by additional disbursements from the EU and other bilateral creditors appears the only viable solution”

Institute for International Finance review of the Ukraine situation, as quoted in the Euromoney story Ukraine’s depressing economic bind – and sovereign default risk

Lead Stories

Ukraine’s depressing economic bind – and sovereign default risk
Sid Verma – Euromoney magazine
The scale of Ukraine’s challenge to correct economic balances is staggering, even if a political consensus is reached that would see an IMF support package. What’s more, markets might be understating sovereign default risk given strict debt covenants in the 2015 Russian-backed dollar bond that is sure to be used in a regional chess game, say analysts.
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***DA: And 70 years after WWII, eastern Europe still supplies the pawns.

Argentina Takes Its Debt Case to the U.S. Supreme Court
STEVEN M. DAVIDOFF – NYTimes.com
Argentina has now staked the future of its debt, and perhaps its financial fate, with the United States Supreme Court. Yes, you read that right.
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***DA: What a messy business. No easy answer here, except that there will not be enough pesos to go around.

The Myth of German Austerity
Paul Krugman – NYTimes.com
Every once in a while I hear people trying to dismiss the overwhelming evidence for large economic damage from fiscal austerity by pointing to Germany: “You say that austerity hurts growth, but the Germans have done a lot of austerity and they’re booming.”
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***DA: Beware the single metric. See above.

Confront imbalances to end market turmoil
Alexander Friedman – FT.com
The rebalancing of global current accounts has been hailed as a major positive development since the financial crisis. But it is in the years ahead that the adjustment will face its most difficult test.
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Non-bank lending steps out of the shadows
Tracy Alloway and Arash Massoudi in New York – FT.com
Shadow banks are beginning to win friends and influence people, as a bill to boost lending to America’s small businesses attests.
jlne.ws/1hSwEPK

Esma’s Verena Ross calls for industry engagement on Mifid II bond rules
Anish Puaar – Financial News
The executive director of Europe’s top securities regulator has called on the industry to help it craft new rules designed to improve transparency in the region’s “fragile” bond markets.
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***DA: I wonder if transparency will make them any less fragile.

Open Economy May Aid U.K. Productivity, Says BOE’s Broadbent
WSJ.com
A puzzling collapse in British productivity may start to reverse in the coming years as the global financial system heals and world trade picks up, Bank of England policy maker Ben Broadbent said Wednesday.
jlne.ws/1hSwEPV

Hunting credit, firms look beyond wary EU banks
Reuters
When David Armitt needed to refinance loans last year for his 153-year-old manufacturing company in Yorkshire, he found British banks reluctant to lend. So he took the nuclear option.
jlne.ws/1fqIKIf

India in thrall to not so dead economists (part two)
David Keohane | FT Alphaville
Worrying imagery aside, the comparisons between Narendra Modi and either Thatcher or Reagan stand up to at least some scrutiny. And, as we mentioned in a previous post, the intellectual ballast of India’s potential next leader may well be provided by two of India’s more ‘pro-growth’ sons — Jagdish Bhagwati and Arvind Panagariya.
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Currency unknowns weigh on an independent Scotland
John Kay – FT.com
The image that comes to mind is of schoolboys squabbling in the playground. Alex Salmond, the Scottish first minister, proclaims that the pound sterling is the common property of both Scotland and England. George Osborne asserts that the pound belongs to him and the UK chancellor will not let it go. Both claims have some merit and both are irrelevant. If Scotland did vote Yes to independence, that would be the time at which sensible negotiations would start, preferably between grown-ups.
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Central Banks

China dismisses concern over sudden renminbi fall
Simon Rabinovitch in Shanghai – FT.com
The sell-off in the renminbi is a reflection of market forces and should not be over-interpreted, the Chinese central bank has said in its first official statement on the sudden weakening of the country’s currency.
jlne.ws/1hSwF6j

BOJ’s Ishida: recovery on track even if GDP falls after tax hike
Reuters
Japan’s recovery will remain on track even if the economy contracts in the second quarter after sales tax is raised on April 1, a Bank of Japan board member said on Wednesday.
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Federal Reserve Board Announces Release Dates For The Latest Supervisory Stress Tests Results And Related Results From The Comprehensive Capital Analysis And Review
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Currencies

The Financial Conduct Authority fines FXCM UK GBP4 million for making ‘unfair profits’ and not being open with the FCA
The FCA has fined Forex Capital Markets Ltd and FXCM Securities Ltd (“FXCM UK”) GBP4,000,000 for allowing the US based FXCM Group to withhold profits worth approximately GBP6 million ($9,941,970) that should have been passed on to FXCM UK’s clients.
jlne.ws/1fqIKYB

Brazil’s Real Recoups This Year’s Losses
MoneyBeat – WSJ
The Brazilian real has erased this year’s losses in the past few days as a government blitz to restore confidence seems to be bearing fruit and global investors feel more confident about emerging markets.
jlne.ws/1hSwF6s

Mounting Ukraine fears hit hryvnia, spill into Russia
Reuters
Ukraine’s hryvnia tumbled 4 percent on Wednesday to 10 per dollar on Wednesday as political uncertainty mounted, its weakness spilling into the Russian rouble, taking that currency to a fresh five-year dollar low.
jlne.ws/1hSwHLp

Yuan obeys PBOCs orders, again weakens past fix
The Economic Times
China’s yuan weakened below the daily fixing for a second consecutive day on Wednesday after the central bank set the lowest midpoint in more than two months, in a sign authorities are determined to stamp out speculative bets in the currency.
jlne.ws/1hSwF6v

Yuan’s Decline Triggers Fears on Leveraged Bets
WSJ.com
The sudden slide of the Chinese currency over the past week has raised concern that the yuan is nearing levels that could trigger an unwinding of billions of dollars in highly leveraged bets on its appreciation.
jlne.ws/1hSwHLt

No Bailout for Bitcoin Holders
EDWARD HADAS – NYTimes.com
Imagine that the leading stockbroker in a country closed its doors without giving any reason. Its clients would be in a panic and customers of rival firms would be very nervous. That is exactly what has happened to Bitcoin, the leading pseudo-currency.
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***JM: This is an important consideration for proponents of an unregulated exchange. If you want it to be outside the law, then you can’t go to the law for help if it steals from you. Cake, or eat; you have to choose.

Trading Site Failure Stirs Ire and Hope for Bitcoin
NYTimes.com
The apparent collapse of Bitcoin’s best-known and once-dominant trading platform has provoked outrage among its users, but it has also stirred hopes that the way may now be clear for more established players to transform and rein in a largely unregulated market.
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BitBeat: The Two-Bit Idiot Steps Into Bitcoin’s Crisis
MoneyBeat – WSJ
As Mt. Gox was slipping into the abyss last night, with questions about whether it steps back, a document — titled “Crisis Strategy Draft” — started making the rounds that purported to show a plan to shut the site down, rescue it via a coordinated effort from peers, and rebuild and rebrand the site.
jlne.ws/1hSwFmN

***DA: The two-bit idiot is now only worth one bit.

Indexes & Index Products

HKEx Welcomes Government Proposals To Waive The Stamp Duty For All ETFs
jlne.ws/1fqIOaM

Five New Db X-Trackers ETFs Launched On Xetra – ETFs Provide Access To Euro Bonds From The Euro Zone And MSCI AC World
jlne.ws/1fqIOaO

Gold

Physical Gold Buyers Say Fix Is Vital
Francesca Freeman – WSJ.com
The London gold benchmark is vital to Grant Phillips’s business. In workshops behind a highly secure store front in London’s jewelry district, the firm that Mr. Phillips manages, Refined Precious Metals, melts gold scrap and sells it on to refiners.
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California couple strikes gold after finding $10 million in rare coins
CNN
Eureka! A husband and wife are reveling in their good fortune after finding $10 million in rare gold coins buried on their property in Northern California.
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***DA: It’s 1849 all over again!

Gold Is Up 12%: Has A New Bull Market Begun?
Barron’s
Is it premature to declare that gold’s bear market is finally over? It certainly looks that way to some chartists, who are making a big deal of gold’s double-bottom at the end of last year just below $1,200. Since then, bullion has risen by $140 an ounce, or more than 10%.
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