China! China! burning bright

In a bubble, Day and Night

Is it Bust or is it Boom

That frames thy fearful asymmetry?*

 (click on pictures to enlarge)

Can you feel it? That calm and soothing feeling of low volatility and heaven bound risky assets driven by green shoots and second derivatives. Well, if you can't you are excused since neither can yours truly, or more precisely; he has a distinctly difficult time seeing from where people get the idea that we are headed for a broad based global recovery. However, beauty as always lies in the eye of the beholder and whichever way you look at it would be difficult to completely deny that the three key ingredients for a global recovery (and a resurgence of carry trade) in the form of low volatility, steadily climbing risky assets, and benign credit wholesale market credit

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Yes, I know. Everybody is talking about a recovery and how the worst is over and investors are still bathing in the soothing calm of longest bear rally so far in this crisis. But seriously, you don't believe that this will last do you? Well, even if you do, this will not be the topic of this entry [1].

Rather, I thought it would be interesting to have a look at one of the (relative) success stories in the midst of the economic mire in which we find ourselves. The economy in question is Chile, and apart from Bloomberg's report that Finance Minister Andres Velasco, after having been "burned" back in November, is now almost a rock start the point is well worth pondering.

(cut and paste at my discretion)

The Chilean peso has risen almost 10 percent against the dollar this year to become the best-performing currency among emerging markets.

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Chile's economy expanded faster than expected in the second quarter, indicating that the central bank may well feel more comfortable raising interest rates in order to slow inflation further. Chile's GDP grew by 4.3 percent in the second quarter, up from a revised 3.3 percent in the first quarter, according to data out today from the Santiago-based central bank. The faster-than-expected growth was driven by an 11 percent increase in domestic demand, suggesting policy makers have room to raise interest rates further without bringing the economy grinding to a halt. The central bank has raised its overnight rate by 1.25 percentage points to a nine-year high of 7.75 percent this year in an effort to bring down the highest inflation rate since 1994. The central bank raised interest rates by half a percentage point at each of its last two monthly meetings, and most economists now ...

Chile's peso gained the most in a week yesterday after the Federal Reserve lowered its benchmark U.S. interest rate. The Fed lowered the overnight rate 0.75 percentage point to 3.5 percent, widening the spread with Chile's 6.25 percent key rate to 2.75 percentage points. This is the biggest difference since 2002.The rate cut is obviously going to translate itself into increasing appreciative forces in a number of emerging currency markets, among them the Chilean peso one. Indeed, if I had to list half a dozen emerging markets I thought would weather the storm better than others, Chile would definitely be there, as probably would Brzil (in Lat Am), Morocco and Turkey on Europe's southern fringe, and Thailand and India in Asia.As if to confirm my intuitions Chile's peso advanced the most yesterday since Jan. 11, rising 1.4 percent to 478.64 per dollar ...

Chile's central bank raised its benchmark lending rate to the highest in six years as it seeks to curb the fastest inflation in a decade. Policy makers raised the benchmark rate a quarter point to 6.25 percent in a meeting yesterday.The bank acted in response to inflation that climbed to an annual rate of 7.8 percent in December, driven by higher costs for food and transportation. The question is, with the US Fed set to lower rates rapidly, will this move curb inflation, or attract funds which can only serve to accelerate it. With the Peso set to rise, dollar denominated loans are going to look increasingly attractive to Chilean clients.It was the second consecutive monthly increase as the bank tries to bring inflation down to its target for two years from now: 3 percent plus or minus 1 percentage ...

Chile's investment-grade credit rating was raised one level by Standard & Poor's Ratings as a rally in copper, the country's biggest export, boosts the government's budget surplus.S&P raised Chile's foreign debt rating to A+ from A, saying the government strengthened its finances by setting aside this year more than $10 billion of windfall revenue to cover social program and pension costs when copper prices decline. The rating, the highest in South America, is above rankings on South Korea and China and is on par with Italy and Iceland.``Chile has consistently followed very disciplined policies,'' said Alonso Cervera, an economist at Credit Suisse Group in New York. ``Chile's treatment of excess revenues is an example other countries should follow. The upgrade is well deserved.''Moody's Investors Service may follow S&P in raising Chile's rating. On Dec. 13, Mauro Leos, a sovereign debt analyst at Moody's, said ...