Weekend End Blog – Waiting for Draghi, Japanese Tax Effects and Alternative Investments

All eyes are on Draghi and the ECB. Clearly, the market is expecting additional measures to be announced next Thursday. And, based on the German 10-year bond yield, which has come down in dramatic fashion, markets may be expecting a little too much.

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This week the ECB was handed even more data to build a case for additional easing measures. Money supply growth dipped below the 1.0% threshold for the first time since September 2010, reminding us that there is no transmission mechanism, whatsoever.

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Meanwhile, Spain seems to have left the worst behind it. Retail sales came in better than expected, rising 0.7% from a year ago. Even more impressive were the latest mortgage data. Total mortgage approvals rose for the first time in four years in March, while total mortgage lending increased by 16.0% year-on-year, the first positive growth number since August 2007.

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In the US the, already, meagre GDP growth number for the first quarter was revised down. The second estimate showed that the US economy contracted by 1.0% measured on an annualized basis. The reason; bad weather, of course!

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Another interesting chart that popped up in many Twitter timelines this week, is the one shown below. While the economic recovery is ongoing, its strength lags that of other major economic recoveries. In my opinion this fits the profile of a recovery in which the financial system that is deleveraging.

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Let’s move over to Japan. Japanese macro data are all over the place as a result of the sales tax hike. Core inflation reached a 23-year(!) high in April.

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The sales tax hurt retails sales which fell by an ‘incredible’ 13.7% in April. For now it is difficult to get a clear picture of the economic situation in Japan. The macro surprise index has picked up, but the quality of the data is low, because expectations are also all over the place. The Bank of Japan seems happy with its own effort, however. Mr. Kuroda explicitly shoved responsibility towards the government recently, indicating no immediate additional actions from the central bank.

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This Weekend End Blog ends with something ‘different’. This week one of my tweets contained a graph with the price development of wine. It showed that, over the last couple of years, prices of investable red Bordeaux wines have come down by about a third.

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This chart made me curious how some of the alternative asset classes, that attracted much attention in recent years, performed over time. In a new blog post I calculated the average annual return over the last 10-years of a couple of ‘traditional’ alternative asset classes and a number of more ‘exotic’ ones. The results show that wine would still have been a pretty good bet over the last 10 years. The same is true for farmland en timberland, while hedge funds and commodities have trailed over the past decade.

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