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2021-03-07

On Thursday August 9 2007, financial markets suddenly seized up.

Since I was running the Financial Times markets team, I spent two days frantically trying to identify the reason for the panic. Nobody knew. But that weekend I suddenly woke in the middle of the night with an image of a Spanish bin in my head.

A month earlier I had attended a credit conference in Barcelona, where I read brochures about a little-known, and supposedly safe, entity known as a “structured investment vehicle”. 

The material had seemed achingly dull. So on the way home I tossed the papers into an airport bin — and forgot it. 

But, somehow, my subconscious knew that had been a mistake. So I awoke and went online to uncover what I had left in that bin.

Gillian Tett FT 10 August 2017

https://www.ft.com/content/a859449e-7daf-11e7-ab01-a13271d1ee9c


Gillian Tett: Have we learnt the lessons of the financial crisis? 

FT 2018-09-01


https://englundmacro.blogspot.com/2018/09/gillian-tett-have-we-learnt-lessons-of.html


Frozen withdrawals in 2007 and 2015






2021-03-06

Nigel Farage quits politics

The former leader of the UK Independence Party and the Brexit Party, credited even by his sharpest critics as the most influential politician of the past two decades, has finally quit politics. 

Telegraph 6 March 2021


https://www.telegraph.co.uk/politics/2021/03/06/exclusive-nigel-farage-quits-politics-time-means/




Is Inflation Alive?

Inflation in most rich countries has been low since the 1990s, not least because of central banks’ success in lowering long-term inflation expectations. But 

https://www.project-syndicate.org/bigpicture/is-inflation-alive


Wolf: Amid a wide range of options, inflation targeting remains the simplest and least bad

https://englundmacro.blogspot.com/2021/03/amid-wide-range-of-options-inflation.html

2021-03-05

“Bonds are not the place to be these days,” Warren Buffett

Allowing the bond market to take some air out of ebullient valuations in equities and housing through higher 10-year rates is an appropriate policy approach given how far asset prices have risen and when economic growth is picking up. 

The US 10-year currently remains below the 1.80 per cent level seen before the arrival of the pandemic. Arguably, that looks low because the current macro outlook is the reverse of the slowdown that was evident in early 2020.


Michael Mackenzie FT 5 March 2021


https://www.ft.com/content/893d652f-36cb-4993-bfea-0ab936bed7df

Fastighetsbolagen har gått in i en ny fas efter det gyllene årtiondet

https://www.di.se/analys/ny-fas-efter-corona-slut-pa-det-gyllene-artiondet/

The stock market remains far from “crash” territory

As anyone with a working memory of last March’s pandemic-inspired selloff, much less the global financial crisis of 2008, the dot-com bubble burst in 2000 or October 1987 would recall.

Last year as it became apparent the COVID-19 pandemic would bring the U.S. and global economy to a near halt. The S&P 500 plunged from a record close on Feb. 19, dropping around 34% before bottoming on March 23.

Since those March lows, the S&P 500 remains up nearly 72%, while the Dow has rallied nearly 70%. And even with its recent pullback, the Nasdaq remains up more than 90% over that stretch.

MarketWatch 4 March 2021


https://www.marketwatch.com/story/stock-market-crash-no-but-a-rotation-away-from-u-s-tech-stocks-is-shaking-up-some-investors-11614888386


The $21tn US Treasuries sector

In March 2020, as Covid-19 hit the west, Treasury prices went haywire as market liquidity collapsed. 

That was shocking in a sector that is normally “the largest and most liquid government securities market in the world”, according to the Federal Reserve.

Fed officials eventually unblocked the market with unprecedented interventions

Last week, the markets started to gyrate alarmingly again amid inflation concerns

Gillian Tett FT 4 March 2021


https://www.ft.com/content/375e447e-4d69-4817-b00c-a472b06ec3f3


Liquidity is in the world’s biggest bond market, except when you really need it

https://englundmacro.blogspot.com/2021/03/iquidity-is-in-worlds-biggest-bond.html

2021-03-03

Liquidity is in the world’s biggest bond market, except when you really need it

Bond traders have been saying for years that liquidity is there in the world’s biggest bond market, except when you really need it.

Last week’s startling gyrations in U.S. Treasury yields may offer fresh backing for that mantra, and prompt another bout of soul-searching in a $21 trillion market that forms the bedrock of global finance.

Bloomberg 2 March 2021


https://www.bloomberg.com/news/articles/2021-03-02/a-21-trillion-treasuries-mystery-is-bedeviling-global-markets

Många trodde bostadspriserna skulle falla när pandemin bröt ut, men

Låga räntor och stor efterfrågan har istället lett till nya rekordnivåer. Vad får det för konsekvenser och hur länge kan det fortsätta så här? 

I studion riksbankschefen Stefan Ingves, Cecilia Hermansson, forskare i finansiell ekonomi vid KTH och Shoka Årman, privatekonom på SPP.

SvT 1 mars 2021


https://www.svtplay.se/video/30288014/ekonomibyran/ekonomibyran-sasong-3-avsnitt-7?start=auto


Amid a wide range of options, inflation targeting remains the simplest and least bad

The rationale for inflation targeting has three components. 

The first is that one instrument — in this case, monetary policy — can only be aimed at one goal. 

The second is that a central bank can only target a nominal goal of some kind. 

The third is that inflation is a comprehensible and politically acceptable aim.


There are at least four strong objections to targeting asset prices.

It is possible that an exceptional crisis, such as the pandemic, will generate policy mistakes, including unexpectedly high inflation. Andy Haldane, the Bank of England’s chief economist, has stressed just this risk in a thought-provoking recent speech.

Martin Wolf FT 1 March 2021


https://www.ft.com/content/160db526-5e8d-4152-b711-21501a7fbd01



Andy Haldane recent speech.

https://www.bankofengland.co.uk/-/media/boe/files/speech/2021/february/inflation-a-tiger-by-the-tail-speech-by-andy-haldane.pdf


Inflation targeting has been successful because it managed to anchor expectations — until it did not.

https://englundmacro.blogspot.com/2020/07/the-troubling-bit-is-that-these.html


 Did inflation targeting fail?  

Martin Wolf, Financial Times, May 5 2009

https://www.internetional.se/taylor.html#wolfomtaylormaj09






2021-03-01

The Looming Test for Central Bank Independence

The Accord itself — admirably short — was published for the morning papers on Sunday, March 4, 1951:

The Treasury and the Federal Reserve System have reached full accord with respect to debt management and monetary policies to be pursued in furthering their common purpose to assure the successful financing of the Government's requirements and, at the same time, to minimize monetization of the public debt.  


The striking difference between then and now is that the pressure to keep rates low is coming from central banks themselves. Guided by the belief that any bad news requires a monetary response, central banks today are assuring financial markets that rates will be low for a long time, with some engaging in “yield curve control” to explicitly cap rates farther along the yield curve. They’re expanding the money supply rapidly at the same time as governments are running large budget deficits.

It’s surprising that officials do not see inflation even as a risk. 

Mervyn King Bloomberg 1 March 2021 


https://www.bloomberg.com/opinion/articles/2021-03-01/mervyn-king-on-powell-yellen-and-central-bank-independence



Mervyn King's analysis of the “Great Stagnation”


https://englundmacro.blogspot.com/2019/10/mervyn-kings-analysis-of-great.html

 


2021-02-28

IMF a political shield for EU policymakers.

The eurozone crisis, starting in 2008, may have further eroded trust in the IMF by diminishing its role as a technocratic institution and independent broker and making it appear a political shield for EU policymakers.

Ousmène Jacques Mandeng FT 28 February 2021


https://www.ft.com/content/9de8e963-850c-47ce-97f1-b0bf29b2b751

EU hijacked the Fund to rescue monetary union at a time when the eurozone had no lender-of-last resort - due its own recklessness and political paralysis - and had therefore exposed a string of sovereign states to bankruptcy. 

The eurozone bail-outs consumed 80pc of total IMF lending between 2011 and 2014 

Ambrose Telegraph 17 July 2019


https://englundmacro.blogspot.com/2019/07/another-imf-chief-from-europe-would-be.html

America’s Excessive Government Spending Must Stop

Financial markets’ current relative calm and low consumer-price inflation are no cause for comfort. 

Previous periods of sharp increases in inflation, rapidly rising interest rates, and financial crises have followed periods of excessive debt like a sudden wind, without warning.

Shultz and Taylor’s book Choose Economic Freedom shows that economic indicators in the United States gave no hint in the late 1960s of the subsequent rapid rise in inflation and interest rates in the early 1970s. 

Likewise, financial markets during the years immediately preceding the 2007-09 Great Recession provided little indication of the calamity that would ensue.

John F. Cogan John B. Taylor Project Syndicate 23 February 2021

https://www.project-syndicate.org/commentary/risks-of-excessive-us-government-spending-by-george-p-shultz-et-al-2021-02





In 1981, Volcker famously broke the back of inflation through a policy of high interest rates, Barro

By sticking to this policy despite a recession, he convinced financial markets, businesses, and households that the Fed would henceforth do whatever was necessary to ensure low and stable inflation.

ROBERT J. BARRO Project Syndicate 25 February 2021


https://www.project-syndicate.org/commentary/inflation-threat-us-fed-ignoring-long-term-inflation-expectations-by-robert-j-barro-2021-02


But no one really knows why inflation has been subdued for so long.

ROBERT J. BARRO Project Syndicate 4 July 2019


https://www.project-syndicate.org/commentary/inflation-monetary-policy-mystery-by-robert-j-barro-2019-07


- Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro etc, have turned out to be self-referential, inward-looking distractions at best.  


https://www.ft.com/content/28e2f9ac-2b66-11e8-9b4b-bc4b9f08f381