The CrossBorder Capital Blog

The Repo Ricochet   Recent repo rate spikes are a warning of another 2007/08 Crisis, but not a guarantee of one. Markets are becoming illiquid. Despite FOMC rate cut in September, policy needs to focus far more on balance sheet expansion, i.e. QE. This will push bond term premia higher, cause yield curves to steepen and underpin outperformance from value over growth stocks.    

The Most Interesting Chart in the World?       The underlying World economic backdrop is not as bad as it initially appears from a ‘normal’ assessment of financial market indicators. The inverted US yield curve and skidding inflation-adjusted interest rates (TIPS) are largely liquidity phenomena that are distorting markets through unusually depressed term premia. There is a shortage of ‘safe’ assets in global financial markets caused by fiscal austerity policies, compounded ironically by Central Bank quantitative policies and worsened by flight capital from Emerging Markets. These forces have triggered an excess demand for ‘safe’ assets which has driven up US Treasury prices and, simultaneously, hammered down term premia. Assuming that the recent Global Liquidity upturn continues, this may be enough to reverse the downtrend in term premia and normalise market.    

Up, Up and Downnnnnnnn… Why Our Problems Are Financial (Again) and Not Economic   World Central Banks are again easing Global Liquidity conditions. More QE has to be the persistent message. Policy-makers have, in practice, run out of interest rate cuts, since low and negative rate undermine the credit mechanism. This will likely cause bond yield curves to steepen, and gold and cryptocurrencies to rally more.