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2020-09-27

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

---

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




2020-09-26

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





2020-09-25

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




2020-09-24

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


2020-09-23

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/



2020-09-22

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



2020-09-21

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


2020-09-20

Virtual History: Alternatives And Counterfactuals by Niall Ferguson

https://www.amazon.com/Virtual-History-Counterfactuals-Niall-Ferguson/dp/0465023231


Counterfactual history Wikipedia

https://en.wikipedia.org/wiki/Counterfactual_history


Niall Ferguson - en av mina Gurus

https://englundmacro.blogspot.com/2020/07/niall-ferguson-en-av-mina-gurus.html


Niall Fergusson about Brexit: I'm going to admit that I was wrong

https://englundmacro.blogspot.com/2016/12/niall-fergusson-about-brexit-im-going.html

Central banking seemed to have reached an “end of history” moment in the mid-1990s,

when inflation targeting spread round the world after its success in New Zealand. 


A generation later, history has started again, with unpredictable consequences.


R-star is the equilibrium real interest rate, while u-star is the natural rate of unemployment. Both stars seem to have been falling in recent years, the Fed has had trouble catching them


The ECB has even more reason than the Fed to examine its navel: annual inflation has fallen even shorter of the 2% target. The last time inflation was above 2% was 2012 


ECB also has the German Federal Constitutional Court to worry about.


Howard Davies, Project Syndicate 16 September 2020


https://www.project-syndicate.org/commentary/future-of-monetary-policy-after-inflation-targeting-by-howard-davies-2020-09


Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is Chairman of the Royal Bank of Scotland. 


He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.



Är den tyska författningsdomstolen anti-europeisk eller demokratisk? Eller kanske både-och ?




Economic theory discredited


Efter ett kvartssekel med närmast buddhistisk självkontroll, med anpassning till överskottsmål och utgiftstak, är allting plötsligt annorlunda.

Nu gäller snabba cash och ”the sky is the limit” på finansdepartementet.

Det svenska budgetunderskottet väntas i år bli det största sedan 1995, året då finansminister Göran Persson stod inför de flinande finansvalparna på Wall Street och bad om pengar.

Ingen – inte heller stramhetens överstepräster i det Finanspolitiska rådet – tycker att det är fel att staten nu lånar massor av pengar för att möta coronakrisen.

...

Lars Jonung: Det finns en kunskap att sparsamheten, det vill säga det finanspolitiska ramverket som växte fram efter 90-talskrisen, har tjänat Sverige väl, inte minst under dagens kris. Så man kan hoppas att den extremt expansiva finanspolitiken enbart är ett temporärt krisfenomen.

– Jag tycker ju att det är fördel att vi har det här utrymmet nu. Ramverket har tjänat oss väl, säger Karolina Ekholm.

Kriskommissionären Torsten Persson, som inte oroar sig värst mycket över att Lindbeckkommissionens budgetpolitiska arv skulle vara hotat.

Kommer partierna att hålla fast vid en stram budgetprocess?

– Det tror jag. Det har tjänat Sverige väl.


SvD 19 september 2020

https://www.svd.se/corona-utmanar-regler-som-gallt-i-ett-kvartssekel





2020-09-18

Johan Schück: Ekonomisk politik i normlöst tillstånd – vad är det egentligen som gäller?

Det är oklart vad man ska hålla sig till när sådant som överskottsmål och inflationsmål inte längre fungerar.

Redan nu skulle det behövas en plan för återgång till balans i de offentliga finanserna, både vad gäller budgetsaldo och skuldnivå. 

Johan Schück 17 September 2020

https://johanschuck.se/ekonomisk-politik-i-normlost-tillstand-vad-ar-det-egentligen-som-galler/

 

Den 26 augusti 1991 meddelade Björn Wahlström offentligheten att "Penser är slut, utblottad, färdig, inte har en krona på fickan..."

På dokumentet som Björn Wahlström räckte över till Erik Penser stod att Penser skulle acceptera att lämna över alla sina tillgångar till Nordbanken och att han skulle sälja, sina bolag Yggdrasil, Gyllenkamne, Universal och Expo Nord för en krona styck. Tillsammans ägde dessa bolag bland annat 70 procent av Nobel Industrier.

Planens regissör var Roger Holtback, hävdar Penser.

- Det säger alla. Det var inget personligt men han var ute efter att rädda sitt eget skinn.

https://sv.wikipedia.org/wiki/Roger_Holtback

Dan Magnerot - Dagens Nyheter - 19 september 1991

http://www.bankrattsforeningen.org.se/Penser/penser6.html


Erik Penser Bank 2020

https://www.penser.se


2020-09-17

Billionaire investor Ray Dalio on capitalism’s crisis:

Veteran hedge-fund manager says capitalists don’t divide the economic pie well, so the system isn’t working effectively for all.

MarketWatch 17 September 2020

https://www.marketwatch.com/story/billionaire-investor-ray-dalio-on-capitalisms-crisis-the-world-is-going-to-change-in-shocking-ways-in-the-next-five-years-2020-09-17

Dalio is the founder of Bridgewater Associates, the world’s largest hedge-fund firm, which has made him a billionaire.

BIS on how important central bank easing has been

Central bankers all acknowledge in private that low rates are like rocket fuel for asset prices; this is considered a key transmission channel for monetary policy. 

But few will admit in public that they are responsible for this summers stock market surge, either because they do not want to create a "put" for the markets, or get blamed for increasing wealth inequality or become scapegoats if a bubble pops. Or all three.

Gillian Tett FT 17 September 2020

https://www.ft.com/content/0216be8d-147a-439f-8f26-db6bc25e4d4c


BIS Report

https://www.bis.org/publ/qtrpdf/r_qt2009a.pdf

2020-09-16

Handelsbanken avskaffar vinstdelningen till de anställda. Och SE-Bankens liknande förslag som Rolf Englund ledde kampen mot.

Nu har Handelsbankens styrelse, ledd av Boman och Lundberg, beslutat att aldrig mer ge Oktogonen pengar. I stället ska de anställda få utbetalningen direkt. Det betyder att stiftelsen är i så kallad ”runoff” – den kommer att krympa för att till slut försvinna helt.

För att förstå att det här är en revolution måste vi gå tillbaka i tiden. År 1970 var det kris i banken. Jan Wallander tog över som vd, stöpte om banken och gav den en decentraliserad struktur där makten fanns hos kontorscheferna. Banken blev synnerligen lönsam. Dessutom grundade Wallander personalstiftelsen Oktogonen 1973.

https://www.svd.se/de-stora-forlorarna-ar-de-anstallda

För detta, att skänka bort aktieägarnas pengar, fick Wallander bisarrt nog pris för av Aktiespararna.

Tidsandans kraft är stor.

Wallenberg följde efter.

Civilekonom Rolf Englund ledde motståndet mot SE-bankens vinstandelssystem. 

https://www.internetional.se/resevd977.htm

Även Björn Tarras-Wahlberg gjorde en tapper insats.


Druckenmiller Says Inflation Could Reach as High as 10%

Bloomberg 9 september 2020 

D is former chief strategist for billionaire philanthropist George Soros

https://www.bloomberg.com/news/articles/2020-09-09/druckenmiller-says-market-in-raging-mania-inflation-a-threat

2020-09-15

Why Did Stock Markets Rebound From Covid in Record Time?

This year’s wild ride is even more striking against the backdrop of the recession and pandemic gripping the U.S. 


Millions of Americans remain unemployed, corporate profits have collapsed at the steepest rate in a decade and the pandemic hasn’t been contained.


Gunjan Banerji WSJ Sept. 15, 2020


https://www.wsj.com/articles/why-did-stock-markets-rebound-from-covid-in-record-time-here-are-five-reasons-11600182704



Demand-Pull, Cost-Push, and the Fed

Nice charts

John Authers Bloomberg 15 september 2020

https://www.bloomberg.com/opinion/articles/2020-09-15/fed-wants-inflation-japan-points-to-easy-money-limits


‘The Deficit Myth’ Critical Review

True, the federal government can spend any amount by simply printing up the needed money (in reality, creating bank reserves). True, our government need never default since it can always print dollars to repay Treasury bonds. 

But if the government prints up and spends, say, $10 trillion, will that not lead to inflation? Ms. Kelton acknowledges the possibility: “If the government tries to spend too much in an economy that’s already running at full speed, inflation will accelerate.”

So how do we determine if the economy is running at full speed, or full of “slack,” with unemployed people and idle businesses that extra money might put to work without inflation?

John H. Cochrane WSJ June 5, 2020 

https://www.wsj.com/articles/the-deficit-myth-review-years-of-magical-thinking-11591396579

Mr. Cochrane is a senior fellow at the Hoover Institution and an adjunct scholar at the Cato Institut


A profound shift is now taking place in economics as a result, of the sort that happens only once in a generation The Economist 23 July 2020

https://englundmacro.blogspot.com/2020/07/a-profound-shift-is-now-taking-place-in.html


Gamla normala p/e-tal framstår som löjligt låga när priset på pengar närmar sig noll

Under de senaste månaderna har centralbankerna fått för sig att de ska permanenta lågräntemiljön genom att också ändra sina målsättningar. Den amerikanska centralbanken leder, de andra följer. 

Värderingsuppgång på tillgångar är den enda inflationen vi får under 2020-talet.

Henrik Mitelman DI 14 september 2020

https://www.di.se/analys/den-utplanade-rantan-ger-koplage-i-nastan-allt/


Why the Fed’s change of tack could mean inflation is not dead after all

Roger Bootle Telegraph 13 September 2020

https://englundmacro.blogspot.com/2020/09/why-feds-change-of-tack-could-mean.html



2020-09-14

Britain’s 1846 Railway Mania

Japan’s 1989 property-and-equity bubble or the pre-2007 housing-and-structured-debt bubble.

Past bubbles linked to certain sectors have been followed by financial disruption, higher household savings and sudden changes to corporate behavior

James Mackintosh WSJ Sept. 13, 2020

https://www.wsj.com/articles/call-it-a-bubble-call-it-excess-heres-what-to-watch-if-tech-goes-pop-11600002001

https://en.wikipedia.org/wiki/Railway_Mania

New research says spending, not lower rates, would do more to prevent deeper economic scars from the coronavirus pandemic

Fed Officials Are Pushing for More Stimulus From Lawmakers

Fed Chairman Jerome Powell has delicately but resolutely said in recent months he expects Congress will need to do more to compensate for income losses sustained by unemployed workers and revenue holes facing hard-hit businesses and city and state governments because of the coronavirus pandemic.

Wall Street Journal 13 September 2020

https://www.wsj.com/articles/why-fed-officials-are-begging-for-more-stimulus-from-lawmakers-11600005600

Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken.

Englund 5 december 2009

https://englundmacro.blogspot.com/2014/08/skriande-uppenbart.html

And,  of course, Keynes


Battle of Britain 80th commemoration: Flying among clouds with the ghosts of The Few

battle-britain-80th-commemoration-flying-among-clouds-ghosts


The real story of how Britain won WW2


With link to Biggles


Why the Fed’s change of tack could mean inflation is not dead after all

25 years since I wrote my book The Death of Inflation.

I wonder whether we can see now on the horizon the beginnings of a regime where the Fed actively seeks to get inflation running at a level significantly above 2pc, not just for a year or two but as the norm.


Of course, just because central banks want inflation to be above 2pc doesn’t mean to say that they will achieve this. After all, recently they haven’t been able to get inflation up to the 2pc target.


But there are some differences from the situation that existed before the coronavirus crisis. 


Roger Bootle Telegraph 13 September 2020


https://www.telegraph.co.uk/business/2020/09/13/feds-change-tack-could-mean-inflation-not-dead/


2020-09-13

Återinför fastighetsskatten Avskydd av småhusägare – älskad av ekonomerna

Den gamla statliga fastighetsskatten avskaffades 2008 och ersattes med en kommunal fastighetsavgift på max 6 000 kronor per år.


Den gamla fastighetsskatten var 1 procent av taxeringsvärdet och det är ungefär så hög den bör vara om den ska återinföras, enligt Åsa Hansson. För den svenska snittvillan med ett marknadsvärde på 2,6 miljoner kronor skulle det innebära 19 500 kronor om året.


– Det går inte att införa över en natt, utan det är något som man får trappa upp successivt så att folk får tid att anpassa sig, säger hon.


Aftonbladet 13 september 2020


https://www.aftonbladet.se/minekonomi/a/dldlXo/forslag-aterinfor-fastighetsskatten

US budget deficit soars to $3tn record

The US federal government spent more than $6tn in the first 11 months of its financial year.

The figure outpaces the $3tn it took in from taxes.

The shortfall is more than double the previous full-year record, set in 2009.

BBC 9 eleven 2020

https://www.bbc.com/news/business-54126226



Slipsen är utrotningshotad

On the weekend, the era of the universal man-in-jeans-and-a-T-shirt is almost here. At work it is not far behind

This trend depresses me; others find it a relief. Either way it’s a puzzle.

Human beings still see themselves, in the first place, as reflected in others’ eyes. We are vain, hierarchical and desperate for approval. Why are we expressing this less and less through what we wear?

Let us turn, then, to our greatest theorist of showing off: Thorstein Veblen. The Theory of the Leisure Class, written 120 years ago

Once a new order is well established and class boundaries are firmed up, conspicuous display of power becomes less important and, ultimately, vulgar.

For those at the top of the status system, formal attire is replaced by “more delicate methods of expressing [power]; methods which are no less evident to the trained eyes of that smaller, select circle”

FT 9 September 2020

https://www.ft.com/content/1153108d-032e-4223-b390-0b1bcd8c38f5



2020-09-12

The tourists are leaving Italy. Now catastrophe looms

Maria Pasquale, CNN 12th September 2020

https://edition.cnn.com/travel/article/italy-tourism-economy-catastrophe-covid/index.html

Early in the crisis the European Commission took the unusual step of suspending the stability and growth pact,

rules designed to ensure EU countries pursue sound public finances


Mr Le Maire, the French finance minister,  said that an “improvement” to the rules was necessary in his view, but that it was too soon to discuss when to introduce such a change.


FT 11 September 2020


Är Stabilitetspakten Stupid? 

Olli Rehn, Prodi och Persson


- Most governments still deny that they can print money with impunity, as advocated by modern monetary theory, but what matters is that they are doing it.


Simon Kuper FT 4 June 2020

Hearts don’t beat faster for ‘the rules-based international order’

Even if you think rules-based international order perfectly captures the essence of what we are trying to defend, you must acknowledge that the phrase has very limited emotional appeal except perhaps to some elderly schoolmasters. 

The brave people protesting in Belarus, Lebanon or Venezuela would never think to put such words on their home-made banners. 

They write "freedom". Or "justice". Or "truth".

To win the fight against populism, we must appeal to the emotions

Timothy Garton Ash, FT 11 September 2020

Economics is not a hard science, and mathematical models won’t explain why people behave as they do. A much broader perspective is needed

https://www.theguardian.com/commentisfree/2016/feb/05/economics-global-crash-human-behaviour


http://www.nejtillemu.com/ash.htm



2020-09-11

The pandemic is about to enter its most treacherous phase

Washington won’t be there to support the economy this time, as infections inevitably rise as people head back indoors

BARRY EICHENGREEN MarketWatch 10 September 2020

https://www.marketwatch.com/story/the-pandemic-is-about-to-enter-its-most-treacherous-phase-11599770478



2020-09-10

Euron stiger

 


Credit Ambrose



There's No Vaccine Yet for Tech Market Excess

The excesses of the post-Covid rally haven’t been corrected 

Confidence that a vaccine will bring the economic disruption caused by the pandemic to an end appears to be wildly overdone

Lockdowns, on this argument, may actually be counterproductive. 

They slow the process of reaching herd immunity. There are more French, British and Spanish bodies still to be infected, and so the virus can take hold again. 

It is still far too early for supporters of the Swedish approach to declare victory. 

John Authers Bloomberg 10 september 2020



2020-09-09

This is a terrible sign for the condition of the market for anybody who’s experienced a significant number of cycles, which I’ve definitely experienced,” Gundlach said.

  • The coronavirus rout brought a copious amount of new accounts to online brokers this year as amateur investors sought to get a slice of the epic market comeback.


https://www.cnbc.com/2020/09/08/bond-king-jeffrey-gundlach-says-the-surge-in-retail-investor-activity-is-downright-terrifying.html




Gundlach also snubbed one of the market’s favorite trades on a U.S. recovery, saying he’s “betting against” the inflation-linked bond market. 


TIPS products have seen some of the strongest monthly inflows in four years, and market-implied expectations for inflation have touched a 2020 high. 


https://www.cnbc.com/2020/09/08/bond-king-jeffrey-gundlach-says-the-surge-in-retail-investor-activity-is-downright-terrifying.html




Meritocracy, and how it has created a dangerously unbalanced world

David Goodhart, whose new book Head, Hand, Heart 

Michael Sandel, whose book The Tyranny of Merit looks at how meritocratic striving is undermining social cohesion and liberal democracy. 

It wasn’t meant to be like this.


Rana Fororoohar FT 3 September 2020

Rana Foroohar is Global Business Columnist and an Associate Editor at the Financial Times, based in New York. 

She is also CNN’s global economic analyst

Welcome to the zombie economy.

 A  loss temporarily paid for by a loan is still a loss and the erosion of corporate capital a danger to the economy. 

A large number of undercapitalised companies will hold back Europe’s economic performance 

Martin Sandbu FT 8 September 2020



Stockholmsbörsen kommer att stå högre vid årsskiftet enligt experterna

 SvD 6 September 2020

Maria Landeborn är inte orolig för något större börsfall i höst – trots de starka uppgångarna.

Maria Landeborn, sparekonom och aktiestrateg på Danske Bank.


SvD 13 augusti 2020


Carl Hammer, a strategist at Scandinavian bank SEB

while tech company shares had exhibited swings reminiscent of the end of the 1990s dotcom boom, the outlook for equities remained positive.

FT 4 September 2020


"Nu har det vänt" - Ha is i magen"

2020-09-08

Johan Croneman får Axel Liffner-stipendiet

Juryn består av Aftonbladets kulturredaktion.

Han började på Journalisthögskolan i Göteborg 1975, gick ut 1977. 


Han uppskattar att cirka 80 procent av studenterna där, inklusive han själv, var vad han kallar världsförbättrare.

 


2006 fick han Gerard Bonniers stipendium för kulturjournalistik



Aftonbladet 8 september 2020



- Det skulle knappast utgöra en höjdpunkt i mitt liv om mina barn under en period flirtade med vit maktmusik (jag flirtade som tonåring med Stalin, känns sådär idag), eller började hårdplugga Vakttornet - men kommer de hem och säger att Bingo Rimér från och med nu är deras främsta förebild, ja då skulle jag antingen få läggas in, eller troligare: Barnen skickas på brittiskt internat.


DN 8 april 2007



Central banks are working overtime to generate higher inflation

It is hard to believe that government bonds yielding little or nothing are not a hostage to fortune when central banks are working overtime to generate higher inflation. 

John Plender FT 3 September 2020



The recent rise in the euro is causing consternation at the European Central Bank

The currency has risen from $1.06 against the dollar at its March low to briefly top $1.20 last week.

 “It’s one thing for Lagarde to talk the euro down this week, but it’s less clear what they can actually do.”


FT 8 September 2020


Euron spricker när dollarn faller 

Rolf Englund, Nya Wermlands-Tidningen 8/1 2001

https://www.internetional.se/emurolf.html#sprickerfaller



2020-09-07

Assar Lindbeck: akademisk forskning i allmänhetens tjänst.

 Seminarium om forskarens roll i samhällsutvecklingen.


SvT Forum 7 september 2020



Assar Lindbeck om 90-talet: 

En fråga värd att diskutera är om det var rätt att hålla investeringar inom utgiftstaket


https://englundmacro.blogspot.com/2017/05/assar-lindbeck-om-90-talet-en-fraga.html



Officials at the Federal Reserve and elsewhere long ago learned how to achieve their goals without actually doing anything.

 If traders simply believe the Fed will intervene should interest rates go above or below a certain level, rates probably won’t breach that level, or even get close to it. No one wants to make the Fed pull its trigger. 

This is why central banks are so obsessed with “credibility.” They don’t want to actually use their monetary firepower,

Central banks once sought to stop inflation, not achieve it. Now generating it is the goal.  

The concept of a 2% (or more!) average inflation level, running even hotter at times, has been discussed in economic circles for many years. 

Core PCE [Personal Consumption Expenditures] understates to the greatest degree of any inflation metric the cost of healthcare and housing

PCE lets them pretend inflation is low and achieve their unwritten policy objective of keeping the stock market bubbling along.

But unintended or not, the consequences are still there. Is the average man on the street unjustified in thinking that “the elites,” whatever the hell that means, are not looking out for his best interest?

John Mauldin 4 September 2020