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Greece, Puerto Rico, Chicago, et al.

Rich Walls - Friday, July 17, 2015

In the July 16th, 2015 edition of the WSJ, columnist Greg Ip states it perfectly: “sovereign defaults are like cockroaches – there is seldom just one.” Spain, Italy, and Portugal, which share the Euro currency with Greece, face the same daunting task of paying down their enormous debt obligations in a time of economic stagnation. A country can reduce its large debt several ways: austerity, economic growth, and low real (inflation-adjusted) interest rates. “More common than appreciated, is the more radical step of restructuring debt by reducing interest, lengthening the maturity, or slashing the amount owed to creditors”, Ip says. In exchange for potential debt restructuring, creditors (like the IMF dealings with Greece) will require debtors to engage in pro-growth economic policies, fiscal belt tightening, and policies favoring low real interest rates. The massive global debt service requirements will continue to force central bankers to keep interest rates at extremely low levels for a very long period of time. This “financial repression” will likely be accomplished under the guise of prudential governmental regulations that require banks and pension funds to hold increasing quantities of governmental debt despite the paltry yields.  Read More

Flat Week, ENORMOUS Moves

Rich Walls - Friday, May 01, 2015

Despite a relatively unchanged US equity market, this week was anything but flat for key global data points. We saw a massive move in the FX market as the EUR/US Dollar spiked from 1.08 to 1.12, nearly a 4% rise. West Texas Intermediate (WTI) Crude Oil rose from $56 to $60, over a 7% increase, before settling around $59. The German Bund, mentioned in last week’s blog, has had an even more impressive sell-off this week. The yield on the 10y Bund, which had doubled last week, from 0.07% to 0.15%, has more than doubled again this week, from 0.15% to currently 0.357%. Our own US 10y Bond had a dramatic sell-off as well causing a rise in rates from 1.89% to currently 2.12%, an increase of 12%. These tectonic shifts in asset classes are something we actively monitor. Read More

Markets Grind Higher

Rich Walls - Friday, April 24, 2015

Despite generally lackluster earnings, the S&P 500 index rose more than 1.7% during this past week and closed at an all-time high. The upside move in domestic equities comes on the heels of rising global sovereign bond rates. Most notably, the sell-off in the 10yr German Bund caused the yield to more than double, from under 0.07% earlier in the week to 0.15% presently. This move in sovereign rates may prove significant in the deflation fight taking place in the EU and signal that pro-growth policies, coupled with European Central Bank action, are beginning to spur economic expansion in Europe.  Read More


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