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Vitor Constâncio

@VMRConstancio

30 Mar

There is a growing chorus in “market literature” about the alleged coming back of the inflation spectre. Inflation is increasing this year because of oil and pent-up demand one-off effects. Still, the hawks are invoking all possible inflation causes to justify their warnings.1/

However, all official institutions, national and international, are not forecasting high inflation. Taking into account this year`s one-off shocks, the FED projects inflation this year and next to be only 2.4% and 2%, and the ECB forecasts the pow levels of 1.5% and 1.2% 2/

Disregarding those predictions, hawks mention all possible drivers to justify their inflation scare. From fiscal deficits, regardless of private demand and economic slack, to attempting to resurrect zombie monetarism of yore based on recent temporary money increases. 3/

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Vitor Constâncio

@VMRConstancio

16 Feb

A potential problem is looming, and the media are pursuing a new story that builds on the following chain of reasoning: 1) higher inflation is coming;2) if CBs increase interest rates debts will explode and recession may ensue; 3) CBs are caught in an impossible dilemma 1/12

It´s perhaps too complex for some tweets, but.. Registered inflation this year is bound to be higher than present forecasts, resulting from one-off price spikes and base effects That will not start a sustained high inflation process, but temporary higher inflation is possible 2/

For example, Euro Area inflation increased suddenly from several months at -0.3% to +0.9% in Jan. This jump resulted mostly from several base effects, especially the change to German VAT. Inflation expectations increasing but higher in the US than in the EA 3/

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Vitor Constâncio

@VMRConstancio

10 Feb

Not surprisingly, my previous tweets on bitcoin were misinterpreted by many. I didn´t predict the demise of bitcoin. I just pointed out that bitcoin changed its nature. From an initial aim of being a currency, it changed into an accepted asset for investment 1/9

As an asset, the future of bitcoin seems assured if it doesn´t become excessively volatile. Last year, various financial institutions, preceding Tesla, started to invest a very small part of their portfolios in bitcoins. As I said, the allocators of wealth stepped-in. That..2/

That reinforced the fact that bitcoin could not be a general currency for regular transactions by regular people. To buy one bitcoin it costs now (it´s going down a bit this morning) ≈ 45900 dollars or ≈ 37900 euros, in the currencies that everyone uses. So,… 3/

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Vitor Constâncio

@VMRConstancio

8 Feb

Tesla just announced that it had bought 1.5 billion dollars of bitcoin and could in the future sell cars in bitcoins. Since this morning both Bitcoin and Tesla are going up in the market. Maybe there is afterall something in the saying that“Bitcoin is Tesla without the cars”1/ 20

Musk is seen as a genius, a true Midas, by many investors and millennials. For them he can never go wrong. He became recently the richest man in the world dur to Tesla stock valuation (+353% yoy). He moves markets and today´s announcement is “kind of legitimise “ bitcoin 2/

Tesla shares attained $870 which represents a Price/ Earnings ratio of 1.747 (!) on the basis of last year´s profits. Apple is at 37 and the S&P firms average is 23 (against a historical average ≈16). Future profits would have to increase a lot to justify a more normal ratio 3/

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Vitor Constâncio

@VMRConstancio

19 Jan

@ndrea_terzi

Replying @ndrea_terzi The ECB cannot do yield curve control the Japanese way because it cannot hint at 19 10Y yields levels as objectives. To use the new EU Commission debt yields is not effective as maturities are longer, the amount is small (much below € 750bn) ..and 1/

https://twitter.com/ndrea_terzi/status/1350916332091531264

..because it isn't (and cannot become) an equal benchmark to all countries' debt and the ECB has said to be committed to avoid fragmentation. The same applies to the use of OIS rates (that a few have advocated) besides the point that 10Y maturities are too thin a market. 2/

The only way the ECB could apply a sort of yield curve control approximately like Japan would be to concentrate purchases of countries' bonds on e.g. 10 years maturities without fixing any target for the 19 yields, hoping to attain some desired levels by calibrating well the ../3

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Vitor Constâncio

@VMRConstancio

23 Dec 20

The US approved a new relief/stimulus package of almost 1 tr USD (4.5% GDP) on top of the 2.2 tr of last March. The commentariat said it would not be enough and more would be necessary next year. Big Government expenditures increasing more than in any other country 1/

Biden called it just “a down-payment” and (surprise) Trump called it an unsuitable “disgrace” and is threatening to veto it. He wants $2000 for each citizen (below $75000 annual income) instead of the law´s $600. The 5593 pages law (!) is full of “pork-barrel” measures 2/

e.g.” a $2.5 billion break for racecar tracks and..$6.3 billion write-off for business meals” or it “creates an independent commission to oversee horse racing, a priority of Senator Mitch McConnell” 3/nytimes.com/2020/12/22/us/…

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