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Archive for January, 2014

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Posted On 25  Jan  2014  

Further sell off in the emerging markets will harm the developed markets

The good news is that a crisis in the emerging markets will harm the developed markets, which in turn could put a floor on the sell off in the emerging markets. We live in a connected world. It is rare for a crisis in one part of the world not to impact the rest. The impacts are usually measured through correlations. Correlations are, of course, impacted by the degree of connection or sensitivities to the same influencing factors. The financial crisis of 2008 was a rare example of something bad happening in the developed world which had mostly positive consequences for the developing world. The cost of capital for the emerging economies declined as a result of the massive easing and then the even more massive QE. This not only increased flows, but also kept emerging market inflation in check because the flows kept EM currencies stable or at least under

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Posted On 19  Jan  2014  

The inflation, deflation deception

According to the Weekend FT, Ms Lagarde is warning central bankers to take deflation more seriously. Let us take a fresh look: Inflation measures: In each country the PPI and RPI and CPI are calculations used to gauge rates of inflation at the producer, retail sellers and consumers price levels. Are these measures telling us anything really useful or is there a flaw? Summary from the UK, which applies everywhere: The Consumer Prices Index (CPI) and the Retail Prices Index (RPI) measure the changes from month to month in the cost of a representative ‘basket’ of goods and services bought by consumers within the UK. This involves weighting together price changes in the indices according to household spending patterns for different categories of goods and services so that each takes its appropriate share. At the beginning of each year the weights used to compile both the CPI and RPI are

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Posted On 12  Jan  2014  

Bit of a problem with Bitcoin

Update: The problem with Bitcoin is turning into a major catastroph with Bitcoins being stolen. That is what happens with a purely e-currency held in e-vaults. It shows that people and platforms trading Bitcoins are genuine gamblers and cowboys. One finds it surprising that regulators are acting helpless. What prevents people from creating new versions of “Bitcoin”? Why stick with one form of so called “Alternative Currency” or as it is now being described as a “Virtual Commodity”? And what is the point, when very Bitcoin transfer has to be linked to a real currency value? Bitcoin is emerging as a simple trading tool. But its value is totally fictional as it is not driven by any known reference and there is no method to place a value on it. In fact it should not have an independent value at all. The only utility Bitcoin has is that it can