The gold price keeps falling. But at least markets stabilised somewhat this week after realising that Ben Bernanke did not actually say he was going to stop QE tomorrow after all and that in fact his speech was more qualified than a brain surgeon’s curriculum vitae. Still, that has not stopped the ongoing confusion over how to make banks safer around the world. As governments from Austria to Sweden and Germany to the UK plan to sell down their crisis stakes in banks, regulators are still at sea over capital adequacy ratios and how banks should be wound down when they fail. For the record Lex thinks capital ratios under Basel III are problematic. But we think leverage ratios are just plain bonkers. Speaking of banks, we also think recent speculation that rising interest rates will be bad for the sector is wrong.
Meanwhile, the sell-off is putting both municipal bonds in the US and exchange traded funds everywhere under some strain. The former have suffered their worst monthly performance since September 2008 as they are particularly geared to movements in long bond yields. ETFs, however, are not falling apart as many feared. Sure, Citigroup had to temporarily suspend redemption orders. But that is very different from clients not being able to get their money back, as with hedge funds closing their gates during the crisis. Clients could have simply sold their ETFs via Citigroup’s market-making desk instead or using another broker entirely.