Government Bond Yields

US and Many European government bond prices rising ( falling yield trends)  while riskier junk-bond prices are falling. Rallying bond prices sent yields in Europe going down broadly. The 10 year yields in Spain , Italy, Ireland , Portugal , France, Belgium , Denmark and Switzerland all dropped to record lows. As bond prices, yields fall. Bond charts show a rising aversion to risk.Lower bond yields in Europe have turned US treasury bonds into an attractive investments, pressuring down US bond yields, even as the US economy has strengthened and the FED is prepared to increase interest rates in the middle of 2015.

A rising dollar attracts foreign investors to buy extra returns on US bonds and stocks. The dollar reached strongest level against euro today while the Euro zone is fighting against deflation.

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QE (Quantitative Easing) in EURO-ZONE

Today, Mario Draghi, president of the European Central Bank, has announced government bond – buying program (printing money) in the euro region and expanded asset purchases. He said that ECB (European Central Bank) will start government debt purchases in March 2015, combined monthly purchases will be 60 billion euros, to be performed at least until end -september 2016. The ECB will hold 8% of the additional asset purchases. According to Draghi, this implies that 20% of the additional asset purchases will be subject to a regime of RISK-SHARING and this shouldn’t be important, but limited.Moreover, ECB has  left all its interest rates unchanged.

They care about effectiveness of this program mostly and their aim is to create liquidity and stimulate growth. It is necessary to me that ECB don’t have a special rule for Greece but there are some conditions that need to be fulfilled, if conditions fulfilled, they could buy greek bonds in July.Therefore, Greece may has to wait for ECB’s fundamental movement for a while again.

Market expectations had been high for QE before the meeting.After Draghi’s speech, government debt markets rallied,for example; the greek , the spanish , the portuguese 10 year government bond yields hit record low.Stocks get a boost while the euro and bond yields fall and the Euro fell to an 11 year low against the dollar.Furthermore, oil dropped below 49 dollar after ECB announced bond-buying. Draghi warned very low and negative inflation rates are unavoidable , but expected to increase in 2015 and 2016.

To sum up, we will see QE program will work or not for Euro-zone together and For me,  FED QE’s program  was  completely occured from a differerent circumstances compare to ECB. When I compare the real government bond yields in Euro- area and US , they are pretty altered. I guess that ECB QE will be more inefficient than the Fed’s.

What is going on in the global economy right now?

CRUDE OIL

WTI (NYMEX) Price

End of day Commodity Futures Price Quotes for Crude Oil WTI (NYMEX)

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By late 2014, world oil supply was on track to rise much higher than actual demand, as the chart above from Nasdaq shows. And, in september, prices started falling sharply. As prices dropped,  many viewers waited to see whether OPEC, the world’s largest oil cartel, would cut back on its production to help it survive. (On the other hand, Many OPEC states, like Saudi Arabia and Iran, need high prices to balance their budgets). However, OPEC did nothing. For me, the behind reason doing nothing is that Saudi Arabia did not want to lose market share or  raise competition and does not care about volatile oil.

The oil price crash is now destroying the global economy. Of course, low prices are good news for oil consumers in places like Japan or the US, where the gasoline is the cheapest it’s been years. Low oil prices may lead Yen to appreciate. But, it’s a different story for several nations depend on oil sales. For example, everybody knows that Russia’s economy is facing a potential failure.They need capital control measures to save the ruble. Moreover, Venezuela is facing serious debate. Moody’s decision to downgrade Venezuela’s sovereign rating is a marked increase in default risk owing to lower oil prices. Moody’s believes that the key source of vulnerability for the sovereign’s credit profile is the external accounts.

On the other hand, cheap oil may have saved Turkey’s weak economy compare to other big emerging countries. We should not forget that India, Turkey and Taiwan are Goldman Sachs’ top picks in the emerging market space this year.

 This week, Swiss Franc jumped almost 30% in value against the Euro after Switzerland’s central bank scrapped a cap on the value of its currency because oil prices, commodity prices have collapsed.This move was part of a strategy to fight deflation, Many countries are fighting  with deflation nowadays. China’s and Denmark stocks suffer these days. Euro zone is very confused about Quantitative Easing for boosting inflation or not. The Fed officials agreed to signal that US interest rates are likely to increase in 2015 despite their concerns about slow growth abroad. All eyes on them.

kakaka

BOOK ADVICE :                    Fathali Moghaddam Authors New Book “Psychology of Dictatorship”

    In this book,   Fathali Moghaddam discusses the importance of psychological processes such as displacement of aggression, conformity, obedience, fear, and cognitive dissonance as tools that aid the development and maintenance of dictatorships, as well as the crucial role of ideology in cementing the allegiance of elites. Since even democracies contain an ever-shifting relationship between democratic and dictatorial tendencies, with elements that can pull democracies back to dictatorship, this book has important implications for citizens of all nations, even our own.

Moghaddam, born in Iran and raised and educated in England, notes that Ayatollah Khomeni clamped down on his own country by using the 1979 to 1981 hostage crisis, the idea that the United States might attack and a war with Iraq as a springboard that “ended all freedoms and killed all opposition.

He recalls returning to Iran during the revolution in 1979 with “great hope.” But then Khomeni took over after the brutal regime led by Shah Mohammad Reza Pahlavi.

“Unfortunately, revolution did not lead to the end of a dictatorship,” he says, “but a replacement of one dictatorship by another.”

The book also explores the idea that revolution often isn’t enough to topple dictatorships.

“Revolutions can change governments overnight,” Moghaddam says.

“We can write a new constitution in a matter of weeks, but what is much more difficult to change is the psychology of the people.”

Citizens who have functioned within dictatorships with limited or restricted freedoms may not easily respond to change, even when they are strong supporters of democracy, he adds.

“When you live in dictatorships, everyday common people who may even be illiterate are very aware that they’re living in a corrupt system,” he says. “They’re not fooled by ideologies. What keeps them in their place is the gun to the head … brute force.

Moghaddam says programs are needed to prepare people for the changes of living in a democracy.

“[True democracy] can only happen when you have change at the psychological level and change in legal and informal everyday system,” he explains. “Income inequality is increasing and social mobility is decreasing,” Moghaddam says.

“Some people will claim that this has nothing to do with democracy, but can you have a thriving democracy if you have great inequality in resources and opportunities?” 

 

beautifulmind

NASH EQUILIBRIUM/A BEAUTIFUL MIND


 

A Beautiful mind was one of the best movie I’ve ever seen.It includes an amazing look into the life of mathematician, John Nash. His inspiration comes when he and his fellow graduate students discuss how to approach a group of women at a bar. Hansen quotes Adam Smith and advocates ”every man for himself”, but Nash argues that a cooperative approach would lead to better chances of success.

Nash : If we all go for the blonde and block each other, not a single one of us is going to get her. So then we go for her friends, but they will all give us the cold shoulder because no on likes to be second choice. But what if none of us goes for the blonde? We won’t get in each other’s way and we won’t insult the other girls. It’s the only way to win. It’s the only way we all get laid.