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Sunday, June 1

1st Jun - W/E: Markets & Economics

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Citi: Fair Value Of Rates Maybe Lower Than We Thought EarlierZH
Consensus called for a 3% growth year. Despite improving growth data, it remains to be seen whether we can actually sustain those growth rates over successive quarters. If growth does not sustain well above trend levels, the market would need to reassess fair value of long-term rates.

Groupthink 101: What All Goldman Sachs Clients Believe Will HappenZH
Goldman's David Kostin: "Almost all clients have the same outlook: 3% economic growth, rising earnings, rising bond yields, and a rising equity market."

Market Tranquility Is Sowing The Seeds Of Its Own DemiseZH
Market tranquility tends to sow the seeds of its own demise and the longer the period of calm, the worse the eventual whiplash. That pattern played out back in 2007. There are good reasons to suspect it will recur, if this pattern continues, particularly given the scale of bubbles now emerging in some asset classes.

The fragile carry trade: will it last?TradingFloor
A few months ago, fixed income investors couldn’t get out of Brazil, South Africa and Turkey quickly enough. The rump trio of the so-called ‘fragile five’ emerging market economies were at the eye of a storm that roiled financial markets in January and pummelled their currencies as weaknesses in their economies were exposed. But things have changed.

Opportunities and Challenges for Hedge Funds in the Coming Era of OptimizationCiti
Part 1: Changes Driven by the Investor Audience

Hedge Fund Investors Aren't as Dumb as They LookView / BB
This week Citi released a report on hedge funds in which they interviewed 138 investors, hedge fund managers, consultants and others, and answers -- and much else in this report -- are fascinating.

This is your brain on stocksThe Big Picture
Behavioral economics, neurofinance, risk aversion: why you are not wired to make intelligent financial decisions

Investment management: Beyond "He's a terrific stock picker!"Humble Student
Putting the investment process under a microscope * Risk control and portfolio construction * Portfolio implementation * Review and control * Beyond "he`s a terrific stock picker!"

Warren Buffett: These were my biggest early mistakesThe Reformed Broker

My Unusual Career Path in FinanceThe Big Picture

To Make a Killing on Wall Street, Start MeditatingBB

Reconciling Hayek's and Keynes' views of
The views of Hayek and Keynes about the causes and consequences of recessions are often presented as opposing. According to Hayek, recessions are working out excessive investments, whereas Keynes regarded them as demand shortages. This column argues that these perspectives are not mutually exclusive. Recessions may reflect periods of liquidation but this could be associated with inefficient adjustment involving unemployment and precautionary savings. Stimulative policy may be desirable even if it delays the full recovery.

Exchange-rate flexibility and capital flow
Expansionary monetary policy in advanced economies have created capital inflow booms in emerging markets. This column analyses the effect of exchange rate flexibility on credit markets during capital inflow booms. In economies with less flexible exchange rate regimes, credit grows faster and more towards foreign currency. These countries may benefit the most from regulatory policies.

Larry Summers: “Robots are already taking your jobs”FT
“We are seeing less and less opportunity for what average people – people lacking in certain skills – are going to be able to do.”

A Bond Manager Thinks about the Equity PremiumAleph blog
One of the things that annoys me about the concept of the equity premium is that it is an academic creation that does not grasp the structures of the markets.

The Great BacklashProject Syndicate
Nouriel Roubini: In the aftermath of the 2008 global financial crisis, policymakers’ success in preventing the Great Recession from turning into Great Depression II held in check demands for protectionist measures. But now the backlash against globalization has arrived, and we know from bitter experience what could come next.

Are banks too large?
Large banks have grown and become more involved in market-based activities since the late 1990s. This column presents evidence that large banks receive too-big-to-fail subsidies and create systemic risk, whereas economies of scale in banking are modest. Hence, some large banks may be ‘too large’ from a social perspective. Since the optimal bank size is unknown, the best policies are capital surcharges and better bank resolution and governance.

An astonishing record – of complete failureFT
‘In 2008, the consensus from forecasters was that not a single economy would fall into recession in 2009’

Financial Hazards of the Fugitive LifeNYT
A fascinating and disturbing portrait of the economic constraints and incentives faced by a large subset of Americans: those who are hiding from the law.

Piketty's Capital: An Economist's Inequality Ideas Are All the Rage – BB
Piketty’s Missing Knowhow – Project Syndicate
What the Financial Times got (very) wrong – mainly macro
Piketty’s Response to FT –
Piketty’s ‘errors’ aren’t mistakes: They’re questions, and he answered them – WaPo
Capital in the 21st Century – a response – FT
Thomas Piketty Responds to Criticism of His Data – NYT
FAQ Thomas Piketty vs. The Financial Times – NYT
Thomas Doubting Refuted – Krugman / NYT
That Old-Time Inequality Denial – Krugman / NYT