John At The Center

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In either case, global economic growth would be about 1.5 percentage points lower, not higher, if China revalued its currency as Krugman demands. The magnitude is probably exaggerated, but the direction is certain.

via China, the US, and the renminbi: A rejoinder to Krugman | vox – Research-based policy analysis and commentary from leading economists.

In the United States, the Treasury — and often only the Treasury secretary himself — comments on the dollar. That has helped limit sudden fluctuations in the dollar’s value in currency markets.

But China has no such policy limiting which agencies or individuals can publicly address currency issues. For decades, currency policy has been the purview of the central bank, but the central bank is a politically weak institution. The People’s Bank of China is simply one of many economic policy ministries and even lacks independent authority over monetary policy, unlike the Federal Reserve.

via China Leaders Vie for Control of Exchange Rate – NYTimes.com.

Seeing how many of our readers are actively involved in the asset management industry, we figured many of you would find this past research intriguing. This is a prior McKinsey & Co publication from a few years ago where they crafted predictions for the asset management industry for the future (and in particular 2010). So, it's interesting to look back on their predictions & research and compare it to the modern day asset management industry. In the report, they outlined eight key trends that at the time they thought would be key going forward:

via The Asset Management Industry In 2010: A Look Back At McKinsey’s Predictions ~ market folly.

Algorithmic trading has sharply increased over the past decade. Does it improve market quality, and should it be encouraged? We provide the first analysis of this question. The NYSE automated quote dissemination in 2003, and we use this change in market structure that increases algorithmic trading as an exoge- nous instrument to measure the causal effect of algorithmic trading on liquidity. For large stocks in particular, algorithmic trading narrows spreads, reduces ad- verse selection, and reduces trade-related price discovery. The findings indicate that algorithmic trading improves liquidity and enhances the informativeness of quotes.

via The Journal of Finance Forthcoming Article Abstract.

Because the Federal Reserve now owns over 10% (!) of all mortgage debt outstanding. (via Waverly Advisors)

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via Here’s Why Everyone’s Freaking Out About The End Of Fed Mortgage Buying.

Because the Federal Reserve now owns over 10% (!) of all mortgage debt outstanding. (via Waverly Advisors)

MY favorite proposal is to require banks, and perhaps a broad class of financial institutions, to sell contingent debt that can be converted to equity when a regulator deems that these institutions have insufficient capital. This debt would be a form of preplanned recapitalization in the event of a financial crisis, and the infusion of capital would be with private, rather than taxpayer, funds. Think of it as crisis insurance.

via Economic View – In Financial Regulation, Recognize Our Limitations – NYTimes.com.

One thing we cannot do very well is forecast the economy. The recent crisis and recession caught most economists flat-footed. This is nothing new. We have never been good at foretelling the future, but when the news is favorable, others forgive our lack of prescience.

via Economic View – In Financial Regulation, Recognize Our Limitations – NYTimes.com.

Mr. Lindloff buys shares in Patterson-UTI Energy, because he thinks it looks ripe for an uptick. Instead, it dives a few cents, and because Mr. Lindloff has an automatic stop on the trade — which sells the shares if they dip below a certain threshold — they are sold for a loss. A moment later, the shares shoot up.

Mr. Lindloff thinks he has been juked and jived by a robo trader.

via Day Traders 2.0 – Wired, Angry and Loving It – NYTimes.com.

Big, muscular Wall Street veterans like Goldman Sachs have the money, smarts and brute power to dominate this computerized battle, and many day traders may not even be aware how outgunned they now are.

via Day Traders 2.0 – Wired, Angry and Loving It – NYTimes.com.

The company charges aspiring traders $199 a month for a live, real-time view of Mr. Lindloff’s computer screen, along with the running banter, commentary and advice that he and Mr. Gomez provide through the morning. (After lunch, it’s just Mr. Lindloff.) The service is billed as a chance to look over the “virtual shoulder” of two veteran stock traders, but you don’t really see anyone’s shoulder. It’s more like staring at the instrument panel of a jet while eavesdropping on the pilots, plus the ceaseless tap-tap of a keyboard.

via Day Traders 2.0 – Wired, Angry and Loving It – NYTimes.com.