Wolfgang Münchau: After 17 years, this will be my final column for this newspaper /FT/

I find  insider-outsider classification more useful than, let us say, establishment versus anti-establishment, or liberalism versus populism. 

I do not believe that populism will endure. But the rules-based multilateral order is crumbling for reasons that have nothing to do with populism. 

Many traditional power centres of our democracies — centrist political parties, the mainstream media, some industries — are oligopolies under siege for a reason.

After 17 years, this will be my final column for this newspaper.

Wolfgang Münchau FT 27 September 2020

https://www.ft.com/content/df167ea5-4750-444e-82ff-0f44b09e72be

You know where to find me.

The author is director of www.eurointelligence.com

https://www.eurointelligence.com

Evidence emerging in the commercial mortgage-backed securities (CMBS) market raises questions

over the value of the collateral backing commercial mortgages throughout the financial system.

Properties that have gotten into trouble are being written down by 27 per cent on average

FT 27 September 2020 

https://www.ft.com/content/a34e131c-bf6f-4b7d-9a2c-84c632243e87

Commercial mortgage-backed securities (CMBS)

https://englundmacro.blogspot.com/2020/09/rise-in-distressed-commercial-mortgages.html

US experienced the sharpest plunge in domestic saving on record, dating back to 1947. Roach USD

Because that will continue, and the current-account balance is following suit, the dollar's real effective exchange rate can head in only one direction.

Even with the recent modest correction, the greenback remains the most overvalued major currency in the world, with the REER still 34% above its July 2011 low.

This will trigger a collapse in the US current-account deficit. Lacking in saving and wanting to invest and grow, the US must import surplus saving from abroad and run massive external deficits to attract foreign capital. 

Again, this is not esoteric economic theory – just a simple balance-of-payments accounting identity.

Stephen S. Roach Project Syndicate 25 September 2020

https://www.project-syndicate.org/commentary/saving-rate-and-current-account-imply-dollar-depreciation-by-stephen-s-roach-2020-09

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My prediction of a 35% drop in the broad dollar index is premised on the belief that this is just the beginning of a long-overdue realignment between the world’s two major currencies.

IMF expects the US current-account deficit to hit 2.6% of GDP in 2020, the EU is expected to run a current-account surplus of 2.7% of GDP.

Stephen S. Roach Project Syndicate 22 July 2020

https://englundmacro.blogspot.com/2020/07/imf-expects-us-current-account-deficit.html

Inflation Is Already Here — For the Stuff You Actually Want to Buy

Economists will be relieved that the laws of supply and demand are still working, at a time when so much in the discipline is in doubt. 

The swings in our buying habits have accentuated the difference between the consumer-price index (CPI) and the personal-consumption-expenditures price index (PCE). 

CPI captures the headlines and determines the return on inflation-linked Treasurys, or TIPS. 

The Federal Reserve uses PCE—and the two diverged over the summer.

WSJ 26 September 2020

https://www.wsj.com/articles/inflation-is-already-herefor-the-stuff-you-actually-want-to-buy-11601112630

James A. Baker knew how to stay in the background—and how to shape the story

THE MAN WHO RAN WASHINGTON 

By Peter Baker and Susan Glasser Doubleday

WSJ 25 September 2020

Rise in distressed commercial mortgages

The dramatic rise in unpaid mortgages has already led to $54bn of loans transferring to special servicers in recent months — more than 10 per cent of the CMBS market 

FT 25 September 2020

https://www.ft.com/content/8b61193a-38fc-400a-bbf1-d6862ea709bf

Commercial mortgage-backed securities (CMBS)

Remember 1929 when looking for the cause of the coming financial crisis

https://englundmacro.blogspot.com/2020/09/commercial-mortgage-backed-securities.html

In the US, unemployment is substantial, capital utilization is low, policy interest rates are near zero, and longer-maturity safe rates are at historic lows

Project Syndicate: In May, you argued that, when economies face a liquidity trap at the effective lower bound for the nominal policy interest rate, monetized increases in public spending or tax cuts are an appropriate policy response. 

But once interest rates return to “normal,” governments “will have to adjust their fiscal position and its financing accordingly.” Let’s apply this logic to the United States

PS: The challenge is somewhat different in the eurozone, which you have noted is “at constant risk of national sovereign-debt defaults.” The only way to reduce this risk, you argue, is with “a much larger countercyclical recovery fund, proper conditionality to ensure fiscal sustainability, and an effective sovereign-debt restructuring mechanism.” 

At this point, how likely do you think it is that “the consequences of this experiment with socialism” will last “well beyond the end of the pandemic”? 

Willem H. Buiter Project Syndicate 22. September 2020 

https://www.project-syndicate.org/say-more/an-interview-with-willem-h-buiter-2020-09

Willem H. Buiter, visiting professor at Columbia University was formerly Chief Economist at Citigroup.

UK Sunak plan risks 1930s-style unemployment and is not Kurzarbeit

Chancellor’s cut-price jobs scheme makes the same mistakes as France and the Italy and will not stop an unemployment cliff-edge this winter

Bank of America said the 3m people on the furlough scheme are effectively being written off as "non-viable". 

The Treasury seems to assume that they can switch “relatively seamlessly” to other jobs, but no such jobs are likely to exist in a depressed economy starved of aggregate demand.

Ambrose Evans-Pritchard Telegraph 25 September 2020

https://www.telegraph.co.uk/business/2020/09/25/sunak-plan-risks-1930s-style-unemploymentand-not-kurzarbeit/

Kurzarbeit

The legacy of Hartz IV is a lumpen-proletariat of 7.4m people on “mini-jobs”, part-time work that is tax-free up to €450. This flatters the jobless rate, but Germany has become a split society, more unequal than at any time in its modern history. A fifth of German children are raised in poverty.

http://www.nejtillemu.com/tyskdebatt2016.htm#Hartz

Sammanlagt uppgick hushållens lån i augusti till 4 350 miljarder kronor

Det är en ökning med 14 miljarder jämfört med juli och en ökning med 218 miljarder jämfört med augusti 2019.

Hushållens bostadslån uppgick i augusti till totalt 3 566 miljarder kronor, en ökning med 11 miljarder jämfört med månaden före 

en ökning med 183 miljarder jämfört med motsvarande månad i fjol.

SvD/TT 25 september 2020

https://www.svd.se/hushallens-lan-vaxer-i-oforandrad-takt-ki4v

”Helt klart verkar ingen orolig över att inflationen ska härja som den gjorde under exempelvis 1970-talet. 

Men detta kommer ju att leda till allt högre skuldsättning och det kanske inte är ett problem de närmsta fem eller tio åren men på sikt visar ju historien att skuldberg inte brukar vara gynnsamt”, 

säger Di:s Johan Wendel, 25 september 2020

Commercial mortgage-backed securities (CMBS)

Remember 1929 when looking for the cause of the coming financial crisis

I think it is more likely that the coming financial crisis will be triggered by the market’s rejection of a few classes of securities. Something like this happened in 1929 with the collapse of pyramided securities holding companies.

Among the easiest targets in the aftermath of this will be the major credit rating agencies. The ratings the agencies bestowed on CMBS were just a marketing tool for selling securities. 

FT 25 September 2020

https://www.ft.com/content/f9ff9ed0-c7ff-4718-a65b-8be712379e84

Tett:The next financial crisis may be coming soon

One problem haunting finance, as Carmen Reinhart, chief economist of the World Bank, notes, is that leverage at many institutions was sky-high even before Covid-19

Hyun Song Shin, chief economist of the Bank for International Settlements, has noted. “The immediate liquidity phase of the crisis is [now] giving way to the solvency phase, and banks will undoubtedly bear the brunt.”

Gillian Tett FT 24 September 2020

https://www.ft.com/content/c95e5a72-8322-4cfc-b36a-69e8998aea01

Bank losses could reach €830bn over three years, with half of the European lending system barely surviving

They are already acting preemptively to shore up their capital buffers, tightening credit lines to vulnerable firms, threatening to set off a vicious circle.  

There is no immediate pressure on EU debt markets. ECB bond purchases hide all sins. Risk spreads are beautifully behaved. 

But this is not a stable equilibrium. Sovereign debt ratios will reach extreme levels across much of the Club Med bloc this year, hitting 160pc of GDP in Italy.

Whatever they claim, EU leaders never completed the eurozone banking union. 

The sovereign-bank "doom loop" of 2012 is still there. All that has changed is the scale of the menace.

Ambrose Evans-Pritchard Telegraph 22 September 2020

https://www.telegraph.co.uk/business/2020/09/23/europe-risks-languishing-slump-americas-economy-powers-ahead/

Fed Officials Step Up Calls for More Government Spending to Speed Economic Recovery

The recovery would move along faster “if there is support coming both from Congress and from the Fed,” Chairman Jerome Powell said

Chicago Fed President Charles Evans told reporters that his projection that the unemployment rate would fall below 6% by the end of next year had been premised on around $1 trillion in additional fiscal relief.

WSJ 23 september 2020

https://www.wsj.com/articles/fed-officials-emphasize-need-for-additional-relief-to-ensure-robust-recovery-11600872897

Earlier sell-offs involved an attempt to correct obviously excessive prices

The latest sell-off was about rethinking the basic assumption that the U.S. and world economies can continue to recover, buoyed by continuing Fed largesse. 

At this point, the downdraft in U.S. stocks isn’t about the FANGs.

Real yields have been rising from their previous historic lows (chart)

I recommended Chopin’s piano preludes as good listening for a time when you felt the need to hit the panic button. (Such as now, probably.) 

John Authers Bloomberg 24 september 2020 

https://www.bloomberg.com/opinion/articles/2020-09-24/this-bout-of-stock-market-angst-looks-much-darker

Magdalena Andersson fick rätt. – De stora satsningarna är möjliga för att vi har sparat i ladorna under de goda åren.

Att "spara i ladorna" har varit hennes svar på i stort sett alla krav på utgiftsökningar de senaste åren. Hennes instinkt efter 90-talskrisen är att en stram finanspolitik är att föredra eftersom det ger en stabil samhällsutveckling och handlingsfrihet vid kriser.

Aftonbladet 22 september 2020

https://www.aftonbladet.se/ledare/a/Ln0LvJ/brrr-tank-om-m-hade-styrt-landet

From the March 2020 coronavirus-induced lows, the Nasdaq-100 jumped 84% over 163 days.

Dial it back a couple decades, and the index rose about 86% over 151 days. 

The reasons for the explosive rally may be vastly different, but the paths are, indeed, strikingly similar.

“I don’t know, maybe it is just chance, but still awfully strange,” Kramer wrote. “I guess we are going to find out soon whether the similarities end there.”

https://www.marketwatch.com/story/this-stunning-and-shocking-chart-has-one-wall-street-strategist-worried-about-the-stock-markets-next-move-11600874025

ECB Must Limit Emergency Powers to Temporary Crises, Mersch Says

The ECB’s longest-serving policy maker Yves Mersch, a lawyer by training, is responsible for the ECB’s legal services. 

He has also been at the center of decisions since the single currency’s birth, as head of Luxembourg’s central bank from 1998 and then on the ECB’s six-member board from 2012. 

He’ll step down in December.

Mersch stressed that the ECB doesn’t target the exchange rate, but acknowledged it is “obvious” that it affects the measurement of inflation and must be monitored.

Bloomberg 23 September 2020

https://www.bloomberg.com/news/articles/2020-09-23/ecb-must-limit-emergency-powers-to-temporary-crises-mersch-says

För tillfället saknar Riksbanken något tydligt att hålla sig till

Det borde man försöka ändra på.

Johan Schück 22 september 2020

https://johanschuck.se/vad-bor-bli-riksbankens-mal-nar-inflationen-ar-fast-under-tva-procent/

Federal Reserve Chairman Jerome Powell reiterated the central bank will support the economy “for as long as it takes.”

https://www.cnbc.com/2020/09/22/powell-pledges-the-feds-economic-aid-for-as-long-as-it-takes.html

https://www.cnbc.com/2020/09/21/stock-market-futures-open-to-close-news.html

Jfr

Mario Draghi’s defining moment as ECB president came in July 2012 when he unexpectedly pledged to do “whatever it takes” to preserve the euro.

Att den svenska staten har möjlighet att bedriva en så expansiv finanspolitik i detta läge är fantastiskt.

För det ska vi tacka Anders Borg och Magdalena Andersson som har hållit hårt i slantarna under de goda åren. 

I jämförelse med resten av Europa har vi stora möjligheter att ta oss helskinnade ur eländet. 

Henrik Mitelman DI 21 september 2020

https://www.di.se/analys/sveriges-stora-problem-forblir-olosta-lage-att-testa-nagot-radikalt/

European banks load up on government bonds, raising concerns over ‘doom loop’

S&P said banks in the eurozone’s former crisis-hit “periphery” — such as Italy, Greece and Spain — have the highest exposure to their governments’ debt, along with those outside the euro area in central and eastern Europe.

FT 21 September 2020

https://www.ft.com/content/0696b32b-936d-4d96-81db-c131d5bd8d9d

A “nuclear winter” beckons for the 60/40 portfolio in the 2020s

With stocks and government bonds at historically high valuations, savers are being forced to seek out alternatives, potentially creating a boon for other asset classes but also pitching long-term investors into uncharted territory

FT 22 September 2020

https://www.ft.com/content/fdb793a4-712e-477f-9a81-7f67aefda21a

Så kan investeringar i bostadsfastigheter bli en ännu bättre affär, enligt Riksbyggen

 – Det finns aldrig någon investering som är riskfri, men att äga bostadsfastigheter på orter där efterfrågan kommer att vara fortsatt hög är så nära en obligation man kan komma och med en bättre avkastning, säger Carl-Johan Hansson, chef för affärsområde Fastigheter på Riksbyggen. 

Publicerad:29 maj 2020, Uppdaterad:11 september 2020

https://www.di.se/brandstudio/riksbyggen/sa-kan-investeringar-i-bostadsfastigheter-bli-en-annu-battre-affar/

Serneke rasar på börsen – vd:n duckar alla frågor

DI 21 september 2020

https://www.di.se/nyheter/serneke-rasar-pa-borsen-vd-n-duckar-alla-fragor/

The COVID-19 lockdown is squeezing real estate from all sides and threatens to burst the housing and mortgage bubble

Another reason for alarm is the private, non-guaranteed (non-agency) securitized mortgages that go back to the crazy bubble years and which are still active. These were the millions of sub-prime and other non-prime loans that were egregiously underwritten, many fraudulently.

At the peak of this activity in late 2007, more than 10 million of these mortgages were outstanding with a total debt of more than $2.4 trillion.  

MarketWatch Sept. 21, 2020

https://www.marketwatch.com/story/the-covid-19-lockdown-is-squeezing-real-estate-from-all-sides-and-threatens-to-burst-the-housing-and-mortgage-bubble-2020-09-21

Watering down the existing rules appears a tempting strategy in the short run, ECB Banks

since it would make balance sheets look healthier than they are. 

However, it would recreate the very problem that occurred after the financial crisis of 2008 and the ensuing European sovereign debt crisis, as banks used supervisory forbearance to avoid dealing with their mounting bad loans.

Ferdinando Giugliano Bloomberg 21 september 2020 

https://www.bloomberg.com/opinion/articles/2020-09-21/coronavirus-is-it-time-for-the-ecb-to-get-tougher-on-banks

Nowadays, very few people think we will ever return to the conditions that we once thought of as normal

decent increases in real incomes and decent levels of real interest rates. But…

In both the East and West, populations are ageing rapidly. Many countries, including Japan, Germany and China, are going to experience dramatic drops in the working age population, accompanied by major dissaving by the old and retired. 

Roger Bootle Telegraph 20 September 2020

https://www.telegraph.co.uk/business/2020/09/20/now-demographic-turning-point/

US Treasury market’s brush with disaster must never be repeated

The US government bond market is akin to the investment world’s bomb shelter, a safe space where everyone can seek refuge when the rest of the financial system is exploding. 

In March, the bomb shelter itself started to rumble ominously. 

Robin Wigglesworth 21 September 2020

https://www.ft.com/content/be700784-19c9-4883-886f-02a11126f756

Corporations Going ALL OUT With Massive Leverage! Debt Expansion Will Create Havoc

The Money GPS 21 sep. 2020

https://www.youtube.com/watch?v=eLFYptnOKd0

The rebound since the Covid scare reached its worst in March has been one of the most unbalanced and narrow rallies ever seen

Gains were concentrated in a few big companies. That trend has been at least somewhat corrected in the last two weeks.

The herd psychology isn’t just visible at the level of individual stocks.

John Authers Bloomberg 21 september 2020

https://www.bloomberg.com/opinion/articles/2020-09-21/tech-stocks-reversal-is-healthy-correction-of-unbalanced-market

Kristin Magnusson Bernard, vd på Första AP-fonden, har en egen teori om varför räntan inte sänks

– Riksbanken har varit en av de centralbanker som tittat mest på inflationen när den har fört sin politik. Men nu darrar hela det där bygget lite i grundvalarna. 

Det är ganska tydligt att pendeln svänger mot ett helt annat håll. Men vi vet inte mot vilket håll och vi vet inte hur långt, säger Kristin Magnusson Bernard.

SvD 21 september 2020

https://www.svd.se/fondchefen-darfor-ar-riksbanken-sa-otydlig