So replied Benjamin Franklin, when asked, as he walked out of Independence Hall after the Constitutional Convention in 1787, to the question: “Doctor, what have we got? A republic or a monarchy?” Fast forward 235 years and the answer — and its caveat — remain no less germane.
Jon Danielsson
Review via Foreign Affairs
“Not another book about financial crises!” one is tempted to exclaim. Fortunately, this is an exceptionally provocative and original addition to an ample literature. Drawing on the historical record, Danielsson explains why regulators have not been more successful at limiting financial instability. They tend to focus excessively on exogenous risks (shocks coming from outside the financial system) while neglecting endogenous risks—the destabilizing responses of the participants in financial markets to those same exogenous shocks and, no less, to regulatory action. Having been encouraged in the wake of past crises to develop numerical measures of financial risks, regulators tend to place excessive confidence in the accuracy of those numbers, which are better at predicting the last crisis than the next one, given the ever-changing nature of the financial system.
As risk-off messages go, the markets couldn’t be any clearer in June. Losses weighed on every slice of the major asset classes, based on a set of proxy ETFs. Even cash took a hit, albeit a fractional one.
* Supreme Court limits EPA rules for curbing power plant emissions
* US consumer spending growth slowed in May, raising concerns for economy
* US jobless claims hold steady, suggesting upbeat labor market outlook
* Eurozone mfg activity continues to slow, weakening to 22-month low in June
* Eurozone inflation hits record pace in June
* US dollar bucks the trend vs. most assets with a Q2 gain
* Atlanta Fed’s revised nowcast for US GDP turns negative for Q2:
The answer depends on how you define “safe.” That’s a long conversation because every investor has a unique risk tolerance, time horizon and investment objective. What appears “safe” to you could frighten the hell out of your neighbor. Despite the caveats, we can at least start to think about how the odds stack up when the market takes a dive by crunching some numbers.
* Putin says Russia will respond in kind to Nato expansion
* US economy shrank slightly more than previously estimated
* Fed Chair Powell reaffirms plans to combat inflation
* China mfg sector expands in June–first increase since Feb via PMI survey data
* US considers releasing more oil from the nation’s Strategic Petroleum Reserves
* Grayscale sues SEC over its rejection of firm’s bitcoin ETF
* US stock market still appears to be in bear market as Q2 winds down:
No one knows, of course, but history can offer some perspective for what’s possible and so it’s useful to compare the current regime shift with previous runs of tighter policy.
* Finland and Sweden set to join Nato after Turkey drops veto
* US home price gains eased in April but still rising at an annual 20%-plus pace
* Cleveland Fed’s Mester still backs another 75-basis-points rate hike in July
* Europe faces rising inflation and economic slowdown, says ECB economist
* Richmond Fed mfg index contracted again in June
* US Consumer Confidence Index falls to lowest since Feb. 2021:
High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s close (June 27), based on a set of ETFs. But with global growth slowing, and recession risk rising, analysts are debating if it’s time to cut and run.
* China in focus at wrap-up for G-7 meeting
* Larry Summers’ inflation warning was right. Now he sees secular stagnation
* Lagarde says ECB is ready to “move faster” on rate hikes if needed
* Strong dollar is especially worrisome for emerging markets this time
* US durable goods rose more than forecast in May:
