Visar inlägg från september, 2021

Europe still faces one credible military threat: a Russian invasion of the Baltics

In recent years, ignored by most Europeans, Russia and Nato have turned the region into the continent’s new militarised frontline, the equivalent of Germany in the cold war. Simon Kuper FT 30 September 2021

Cathie Wood, Mohamed El-Erian and Scott Minerd share their views on deflation, inequality and cybersecurity

Cathie - We see three major deflationary forces brewing. Mohamed  - What worries me the most is inequality, both within and across countries. Scott Minerd - The No. 1 one risk is the sustainability of the global payment system.  Bloomberg 30 September 2021  

German banks are among the least profitable in Europe with the slimmest capital bases.

 Companies are more dependent on bank lending in Germany than anywhere else in Europe.  There is a huge number of smaller lenders, strongly influenced by local politicians, that can be used to serve entrenched interests and protect inefficient companies.  Total assets of what is called the Savings Banks Finance Group were 2.38 trillion euros ($2.78 trillion) at the end of 2020, versus 2.49 trillion euros for BNP. Most savings banks in Germany are chaired by a local elected official like a mayor, according to a Bruegel study, making them tools for political patronage. They also operate away from oversight by the European Central Bank. Bloomberg 30 September 2021 Deutsche Bank at present trades at 0.2 times its stated book value  2016-09-29

More persistent inflation than previously thought

 “Markets are extremely vulnerable to any added disruptions to the recovery, and the idea of inflation persisting is slowly becoming the consensus,” MarketWatch 29 September 2021 Nice pic of shipping containers and container ships are seen at the ports of Long Beach and Los Angeles last week.

China - but the bigger danger lies in the discrediting of democracy

Western policymakers risk another big mistake by identifying China as the most pressing challenge to the ancien regime. The US and its allies, we are told, must concentrate their energies on gathering their resources to see off the threat. What we need is more submarines in the South China Sea. The sole superpower promised to remake the Middle East. Instead, as we saw last month in the fall of Kabul, Washington has been forced to cut and run. The rest of the world notices these things.  The failure in the Middle East, however, pales into insignificance against the damage inflicted by the 2008 global financial crash. Historians will record the crash as a momentous geopolitical as much as an economic event — the moment western democracies suffered a potentially lethal blow.  What Trump understood, as did populists elsewhere, is that the voters’ respect for established politics is rooted in a bargain. Public faith in democracy — in the rule of law and the institutions of the state — rests

KU fällde Carl Bildt för hanteringen av brevet till Jeltsin

"Inte säkert ljudet kom från fartyget" Utrikesminister Carl Bildt vill inte ge upp tanken på en kränkande ubåt i Hårsfjärden 1982 - trots att analyser från FOI visat att "ubåten" sannolikt var det svenska skolfartyget Amalia. - Det är troligt, men inte säkert, säger Bildt till SVT. Det inspelade ljudet från den 12 oktober 1982 har i många år varit hemligstämplat. Var en del av det material som låg till grund för den svenska protestnoten till Sovjetunionen efter ubåtsskyddskommissionens rapport. När Ekéus kokar ner allt som framkommit återstår egentligen bara ett bevis som inte går att förklara bort. Bandinspelningen. Länge är bandet hemligstämplat hos försvaret. Flera har undrat för vem det behöver hållas hemligt, eftersom man ju lämnat över det till ryssarna för analys. KU fäller Carl Bildt för hanteringen av brevet till Jeltsin --- RE: Jag vill minnas att Carl Bildt i det brevet bad om ursäkt för att tidigare ha anklagat Sovjet. --- - Han skulle naturligtvis inte

US Home Prices Hit New Record High

The National home price index rose 19.7% from a year ago setting a new record for the series, easily beating the housing bubble max increase of 14.5%. Mish 28 September 2021 House Prices-to-Median Income CalculatedRisk 29 September 2021 Housing Affordability Concerns Rise World-Wide

China’s total housing supply has already reached the levels of much wealthier economies such as Germany and France

 measured in square meters per person Although average housing quality in China is lower and there is potential to upgrade, the massive current level of real estate production has to be unsustainable.  With the housing vacancy rate in urban China now at 21%, the authorities fully understand the need to shift productive resources into other sectors. Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, Project Syndicate 29 September 2021  

The longer central bank ‘tapering’ is delayed, the more the risk of a disruptive markets move

The combination of extremely low and relatively stable US government bond yields has confounded many market watchers for quite a while now, also challenging traditional economic analyses. One should never underestimate the power of central banks intervening in market pricing. After all, what is more assuring than a central bank with a fully-functioning printing press willing and able to buy assets at non-commercial levels.  ... possibility of collateral damage and unintended consequences. Mohamed A. El-Erian FT 29 September 2021

Alfa Romeo Giulietta tillverkad mellan 1954 och 1964

Namnet är en lekfull anspelning på William Shakespeares drama Romeo och Julia och Giulietta är den italienska diminutiv-formen av Julia.

Commodity Price Surge Deals Stagflationary Blow to World Economy

The world economy is facing a buildup in stagflationary forces as surging energy prices boost inflation and slow the recovery from the pandemic recession. Oil’s climbed to more than $80 a barrel for the first time in three years, natural gas for October delivery traded at the costliest in seven years and the Bloomberg Commodity Spot Index rose to the highest level in a decade.  The shock has already drawn comparisons with the mix of economic stagnation and oil-driven inflation spikes that dominated the 1970s. While many central bankers dismiss this as hyperbole, the concern is that more enduring price increases will feed into demand for higher pay, tipping the economy into a vicious cycle. Bloomberg 28 september 2021 “Stagflation” remains a word not uttered in the polite company of the financial world. During the 1973-74 bear market S&P 500 fell 45%. https://www.inter

Global stocks tumble as investors fret over spectre of ‘stagflation’

Tech-heavy Nasdaq falls more than 2% while yield on 10-year US Treasury touches highest level since June “The main market narrative is one of stagflation,” said Samy Chaar, chief economist at Swiss bank Lombard Odier, referring to the spectre of high inflation and a slower economic expansion due to energy price rises and “growth worries coming out of China.” FT 28 September 2021 The increasing evidence of stagflation Mohamed A. El-Erian Project Syndicate 22 September 2021 Nouriel Roubini Project Syndicate 21 September 2021 Real men are not afraid of a little inflation. But they are scared of stagflation

In a liquidity crunch, it’s easier to buy and sell standardized swaps rather than...

finding a buyer for one of thousands of corporate bonds all offering different terms, risks and maturities. When investors wanted to flee the fallout from China Evergrande Group, those in Europe’s 500-billion euro ($584 billion) high-yield bond market found some of the normal escape routes blocked. As trading stagnated in the market for the region’s riskiest bonds, investors were reminded of the problem of buying illiquid securities from an array of sometimes small unlisted companies. It was the same story in 2018 when a string of credit blow-ups sent investors flocking to more liquid CDS indexes to reduce exposure to corporate debt Bloomberg 28 September 2021 What Is a Credit Default Swap (CDS)?

Regions accounting for 70pc of Chinese GDP are rationing power to industrial users

It is puzzling that global markets have been so insouciant about a power crisis in Asia’s anchor economy. The slowdown is happening just as fiscal stimulus fades in Europe and America, and as Western central banks start to tighten in the face of incipient stagflation and a rapidly rising misery index. What can possibly go wrong in global equity markets still at nosebleed P/E ratios?  While this column does not give investment advice, as a personal precaution I have liquidated most of my modest salaryman’s portfolio and intend to ride out the early autumn with 80pc in cash until risk and reward come back into plausible alignment. Ambrose Evans-Pritchard Telegraph 28 September 2021

Trots Evergrande

Molly Guggenheimer, Frida Bratt, Henrik Mitelman, Carolina Neurath  Ekonomibyrån SvD 27 september 2021

Has the binge really helped the economy, or just asset prices?

Since the start of the pandemic, central banks in the U.S., Europe and Japan have been on a $9 trillion spending spree. That binge has turned the U.S. Federal Reserve, the European Central Bank and the Bank of Japan into the ultimate market whales, swelling their combined assets to $24 trillion.

Evergrande's collapse isn’t leading to global contagion, but China’s looming economic disaster might

A major mistake of the Cold War was the tendency of Western observers to overestimate the Soviet Union. I have often wondered if the same mistake is being repeated with the People’s Republic of China. Evergrande is just one of many such leveraged real estate companies in China. But at some point soon — probably before the October holiday — the government will force through a formal restructuring and bankruptcy process. Those considered politically important will get off lightly; the politically disposable will lose their shirts; a few top executives will face jail. China’s growth has been boosted for many years by the construction of an excess supply of housing units. This has been financed by an unsustainable mountain of debt.  Niall Ferguson Bloomberg 26 september 2021 China’s Property Sector Will Muddle Through Rest of Year

Monte dei Paschi di Siena, the world’s oldest bank, is nearing its end

MPS was nationalised in 2017 after it was revealed the bank hid hundreds of millions of euros in losses between 2008 and 2012 using complex derivatives contracts. Thirteen former bankers from MPS and other lenders have been jailed over the case, which shook Italy’s establishment and fomented the rise of populism in the country. FT 27 September 2021 Mario Draghi, Italy’s technocrat prime minister and the former president of the European Central Bank, was Italy’s banking regulator who greenlighted the Antonveneta deal. Bloomberg 22 September 2021  

Housing Affordability Concerns Rise World-Wide

The record-setting rise in home values during the pandemic is triggering fresh debates about housing affordability world-wide, as policy makers search for ways to rein in price appreciation without driving prices sharply lower or derailing the global economic recovery. In Canada, New Zealand and Norway, the home price-to-income ratio is at its highest level ever. In Auckland, New Zealand’s biggest city, anyone who’s owned a house for the last seven or eight years is now a millionaire WSJ 27 September 2021 År det så hemskt att vi faktiskt inte vet hur vi skall undvika att den nuvarande ekonomin byggd på en allt högre belåning av stigande huspriser skall kunna brytas och ersättas med något annat, vad det nu kan vara?

The secular decline in the natural interest rate r* cannot in any way be attributed to rising income inequality

The problem with the analysis by Atif Mian, Ludwig Straub, and Amir Sufi (2021) I will show below that the aggregate savings rate of the U.S. did not rise, which means that even if household savings increased, there was no aggregate saving glut and hence no reason for r* to decrease.  With savings rates for one group unchanged and the other 90% of the population consuming more, the rate of time preference of the average U.S. household must have increased — which is the exact opposite of what the authors conclude. However, the biggest problem of all is that there is no such thing as a market for loanable funds. The irrelevance of this old Wicksellian story has been explained many times, starting with Keynes... There exists no market for ‘savings’ and ‘investment’ which is cleared by an equilibrium interest rate What explains the secular decline in r*? With the top 10% richest households benefitting most from the resulting wealth gains, inequality spiraled up further, leading to another

Passive investment blamed for inflating stock market bubble

 Research suggests index funds have insulated US equities from threat of a sustained bear market The trillions of dollars that have flooded into passive funds in recent years have inflated valuations, radically reshaping the US stock market  The Shiller p/e measure has risen sharply since 2003, however, and now sits at a record high 38 times. "New opportunities will arise for active market participants and the pendulum will begin to swing back in the other direction.” Steve Johnson FT 27 September 2021 NOBODY KNOWS ANYTHING Don’t we still need active management to pick stocks?  What happens if we all just become index investors?

We are caught in a debt trap

 China is stuck in the deep end of this quagmire. In the run-up to the global financial crisis of 2008, debt levels rose dramatically in the United States and many European countries  By early 2016 China was on the financial brink.  To stave off another global financial crisis, the US Federal Reserve had to abandon plans to tighten monetary policy, and Chinese authorities had to inject massive amounts of money into the financial system. Evergrande’s outstanding debts of more than $300bn represent just 0.6 per cent of total credit in China, but... US subprime mortgage market peaked at only $600bn before it went bust and threatened to take down the global financial system. Like its more advanced rivals from the US to Japan, China has created a financial system that is in constant need of government support and stimulus. Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’, HY 27 September 2021

The moment of truth will soon be here

 The world is so awash with debt that even quite small increases in rates could have some potentially devastating effects “How did you go bankrupt?” Bill asks in Ernest Hemingway’s The Sun Also Rises. “Two ways,” Mike replies. “Gradually, then suddenly.” We’ve grown used to record low interest rates. Many of those in work today cannot even remember the higher interest rate environment that ruled before the financial crisis.  Jeremy Warner Telegraph 25 September 2021


They don’t want to be what investor Mark Kritzman calls “wrong and alone.”  A manager with one-third of assets in Chinese stocks won’t get fired if that market falls, since almost every other firm has similar exposure. Being wrong together gives every manager plausible deniability. But a firm that holds little or nothing in Chinese stocks will be blamed by clients if China booms, since its funds will lag behind their competitors. Being wrong and alone is what gets asset managers fired. So NOBODY KNOWS ANYTHING because most investment firms, whether they passively track a benchmark or actively pick stocks, have chosen to echo the weights of China in leading market indexes, no matter what happens. WSJ 24 September 2021 Stock picking has a terrible track record, and it’s getting worse. That’s the thesis of Larry Swedroe and Andrew Berkin’s book, “The Incredible Shrinking Alpha" If you g

A “brutal lesson in geopolitics”

France, whose contract to deliver 12 submarines to Australia for $A50 billion was unceremoniously ditched in the process.  Consider the ambition to create a euro-dominated payments system that allows companies and states to trade independently of the US-dominated financial system. For such a system to work, it must be liquid, which means it must be able to attract other people’s money – Japanese, Chinese, Indian, and certainly US money. This in turn requires that non-Europeans holding loads of euros have a euro-dominated safe asset in which to invest their stash for a day or for a decade.  To prevent the type of humiliation to which Trump subjected Merkel, Europe needs a eurobond. To prevent humiliations like the one Biden has inflicted upon Macron, it needs a common military.  But eurobonds and a common military require Europe’s national ruling classes (particularly those in creditor countries) to give up their own exorbitant power; and to embrace, instead, the radical idea of transna

China Evergrande Auditor PwC Gave Clean Bill of Health Despite Debt

When Evergrande’s auditor, PricewaterhouseCoopers in Hong Kong, signed off on the company’s 2020 financial statements, it didn’t include a so-called going concern warning.  These red flags from an auditor show that it has doubts about the company’s ability to stay afloat for at least 12 months. A PwC spokesman declined to comment. WSJ 24 September 2021

What Could Go Wrong? What Could Go Right?

Stocks are overextended by many different measurements, so at some point, the bears will take control.  More than a few investors aren’t ready for that possibility. Starting Price Matters. Making money in stocks is really quite simple. You buy a stock and then sell it at a higher price. That means two things need to happen. The stock price rises above your purchase price.  You sell while it is up there. While we don’t know the extent, I will bet you a dollar to 47 doughnuts China has dozens of other “Evergrande lite” problems.  I would not want to be a bank or funds holding dollar-denominated Chinese debt.  If Evergrande depresses construction and business activity while raising the cost of capital, growth in China could slip to a very low level.  Here in the US, COVID seems to have taken several million people out of the labor force. Now, to the main risk.  I think the Fed has already waited too long.  What Could Go Right? Maybe we even get an honest-to-God 10%+ correction in the mark

No longer are central bankers seeking to do whatever they can

to ensure money is available for households, companies and governments to borrow at exceptionally favourable rates. They are beginning to worry that money might become too cheap for too long.  That would threaten rising inflation, excess borrowing and even financial instability FT 24 September 2021

A Thursday interest payment deadline on one of its $20bn of US-dollar bonds

The payment had still not been made as of Friday. Nigel Stevenson, an analyst at GMT Research, published a report on the company in 2016 with a target price of $0 a share after visiting 40 projects across 16 cities. FT 25 September 2021 Highly Recommended China’s real estate powder keg threatens President Xi’s drive for stability—and may yet force a too-big-to-fail moment with global implications Evergrande’s Global Bondholders Didn’t Receive Interest Payment

Suppose Evergrande isn’t another Lehman

Suppose that the conventional wisdom is right and that Evergrande isn’t another Lehman moment. That still won’t mean that things are OK Some of us still remember the Japanese bubble economy — or as the Japanese themselves called it, the “babaru economy” — of the late 1980s, when prices of many assets, above all commercial real estate, went completely crazy.  At one point it was widely claimed that the land under the Imperial Palace was worth more than the whole state of California.  Then everything crashed. The bursting of the Japanese bubble didn’t lead to a financial meltdown. But it was followed by a prolonged period of economic weakness Paul Krugman NYT 24 September 2021 Evergrande - China will almost certainly avert a Minsky crisis, but... Ambrose Evans-Pritchard Telegraph 22 September 2021

Canva: Australian online design platform valued at $40bn

Canva provides design templates for people to make everything from greetings cards to posters, resumes and calendars. The firm said it had grown its customer base to over 60 million users in 190 countries, and was on track to post $1bn revenue by the end of the year. It said it had 500,000 paying customers, among them corporate clients like Zoom, Salesforce, Paypal, Marriott International and American Airlines. Canva was founded in Sydney in 2013 by Australians Melanie Perkins, 34, and Cliff Obrecht, 35. BBC 15 September 2021

HSBC UK’s biggest bank is heavily exposed to Evergrande and the Chinese real estate market

Despite being headquartered in the UK, HSBC is first and foremost an Asian bank — and always has been.  Like its UK-based arch-rival Standard Chartered, it cut its teeth in Greater China in the 19th century (largely laundering the proceeds from the British East Indian company’s opium trade). Also, China still hasn’t fully forgiven HSBC for ratting out Chinese telecom giant Huawei to the U.S. Department of Justice for breaching U.S. sanctions on Iran. The information provided by HSBC led to the arrest of Meng Wanzhou, Huawei’s chief financial officer and daughter of the company’s founder Nick Corbishley September 24, 2021 via naked capitalism  

Evergrande’s equity is worth 85pc less than it was at the start of the year

There is a reason that shares offer better returns in the long run than bonds. And while I cannot claim to have any unique insight into the Chinese property market, gas prices or the breakdown of global supply chains, I can see some important defensive lessons for investors in all three of these stories.  When something looks too good to be true it usually is. The importance of thinking carefully through what could go wrong rather than focusing exclusively on what you hope could go right.   The breakdown of supply chains Tom Stevenson Telegraph 23 September 2021  

Surging Bond Yields

Are the Stock Market’s Next Problem A sub-2% yield on the long bond and a 1.4% rate on 10-year Treasuries is still nothing to write home about, of course, and neither could be considered a true “alternative.”  Until there’s evidence to the contrary, it’s simply too painful for investors to bet against stocks “only going up.” But if central banks follow through on dialing back accommodation in the face of roaring markets and wealth accumulation Bloomberg  23 September 2021 US taper may be steeper, and its first rate rise sooner, than expected There could be a grave error of first tapering off asset purchases and only later raising rates Raising rates while keeping the liquidity going would discourage yet more debt issuance, while ensuring that existing debt can be rolled over safely.  That way, conceivably, it might

What Will Climate Change Feel Like? Interactive maps

The modern economy is built on a simple and, until recently, correct assumption, that the global climate is stable.  Probable Futures built a global mapping tool that shows rising risks across several levels of temperature change. The Middle East, northern Africa, and southern and Western Asia will experience warming much more dangerous than cooler and richer Europe. Eric Roston Bloomberg 22 september 2021

Seventy-seven participants placed a total of $1.352 trillion at the Fed’s overnight reverse repurchase agreement facility

Demand for the so-called RRP has climbed further after the Fed this week boosted the amount that each counterparty can potentially place at the facility to $160 billion from $80 billion Bloomberg 23 September 2021 The Fed's Reverse Repo and Balance Sheet Tapering Madness Accelerates Reverse repos, effectively a QE drain, hit new record levels even as the QE madness continues.  

Evergrande - China will almost certainly avert a Minsky crisis, but...

it may not avert a long grinding semi-slump that profoundly changes the world’s perception of the country. Those who have pre-bought homes will top the creditor pecking order: largely protected in the name of social stability.  The big state lenders will be cushioned by central bank liquidity. Chinese investors who sank money into Evergrande through “wealth management products” will suffer haircuts.  Bondholders on the offshore dollar market can kiss goodbye to $19bn.  Shareholders and foreign “tourists” will get nothing.  The authorities will lean on state banks to keep lending developers enough to stay afloat. Ambrose Evans-Pritchard Telegraph 22 September 2021

Stagflation Ahead?

Big Picture Project Syndicate Sep 23, 2021  

Vid slutet av juni uppgick hushållens skulder för första gången till över 5 000 miljarder

Hushållens nettolåneökning uppgick till 94 miljarder kronor.  Enligt SCB är siffran den största under ett enskilt kvartal sedan mätningar började för 25 år sedan. SvD 23 september 2021 The sky is the limit, as we say in Sweden. För varje dag som går med nollränta växer problemen Hushåll, företag och stater ökar sin skuldsättning. Allt fler köper bostäder och aktier till stigande kurser. Allt sämre företag kan sälja sina skräpobligationer, junk bonds. Alla är glada. Utom riksbankscheferna som vet att de inte har någon plan för återgång till något slags normalitet. Hur skall detta sluta? Det är väl skriande uppenbart. Det kommer att sluta illa den dag räntorna stiger.

Evergrande är ingen svart svan – men även vita svanar kan bitas

Översatt till svenska förhållanden är Evergrande ungefär som om byggbolaget Serneke hade anställt Ivar Kreuger som CFO och sedan skalat upp höghusbyggandet grandiost. Byggen har stannat av och utan färdigställanden blir det inga tillträden och slutbetalningar. Den onda cirkeln är i rörelse.  Financial Times rapportering om skalbolag och om hur insättningar använts för att täppa till finansiella luckor och betala tidigare investerare låter som hämtat från kedjebrevsbedragarna Ponzis eller Madoffs skolbok.  Richard Bråse DI 22 september 2021 Nice charts - Highly recommended

The Market hopes that China will be competent

  Watch closely Investors are closely watching an Evergrande bond interest payment due Thursday after the company said a day earlier it had “resolved” a payment for an onshore note.

Yields on US dollar-denominated bonds issued by riskier Asian borrowers have soared to almost 12 per cent

Deepening worries over Evergrande have ignited selling in a $428bn corner of the Asian debt market. A failure to make an interest payment due on Thursday 23 September on one of its offshore dollar bonds could spark China’s biggest-ever debt restructuring.  FT 23 September 2021

The taper will arrive in November

 The monetary menagerie on days like this can get confusing. Beyond hawks (who want tighter money) and doves (who want easier money), there is also the retinue of bulls and bears, all braced for potential black swans, such as viruses. But it looks as though the world is finally ready for a new and apparently much less menacing animal: the tapir.  The taper will arrive in November, and continue munching away at the Fed’s monthly purchases of assets until they are all gone, in June of next year. At that point, the tapir can retire not very graciously into the sunset, its proboscis swaying gently in the breeze.  Everyone can then start worrying about rates. Nice charts. John Authers Bloomberg 23 september 2021 Highly recommended

The Fed has bet on a future of low inflation. Here’s what could go wrong

  MarketWatch Sept. 22, 2021 Fed Repeats Inflation Nonsense But Stays the Course For Now A quick comparison of the Fed's statement today vs July 28 Mish 22 September 2021

Monte Paschi, the nearly 600-year old bank that was battered by the global financial crisis and has been bailed out by the government

Mario Draghi, Italy’s technocrat prime minister and the former president of the European Central Bank, was Italy’s banking regulator who greenlighted the Antonveneta deal. Pier Carlo Padoan, UniCredit’s new chairman, was the finance minister who nationalized Monte Paschi in 2017.  Bloomberg 22 September 2021 Mario Draghi Has to Explain One Last Thing So what happened, exactly, at Monte Paschi? Bloomberg 25 July 2019

The increasing evidence of stagflation

If policymakers delay, the global economy will neither be saved by self-correcting forces nor pushed into a prolonged stagflationary trap.  Instead, the world will return to the previous “new normal” of economic underperformance, stressed social cohesion, and destabilizing financial volatility. Mohamed A. El-Erian Project Syndicate 22 September 2021 Goldilocks Is Dying Given today’s high debt ratios, supply-side risks, and ultra-loose monetary and fiscal policies, the rosy scenario that is currently priced into financial markets may turn out to be a pipe dream.  Over the medium term, a variety of persistent negative supply shocks could turn today’s mild stagflation into a severe case. Nouriel Roubini Project Syndicate 21 September 2021

China’s almost entirely state-owned banking sector will withhold credit from Evergrande for only so long as Beijing wishes

Beijing is teaching the developer a very public and painful lesson. It aims to impress on the hundreds of companies in China’s property sector that it is serious about the “three red lines” it announced last year. Xi Jinping saying in 2017 that “houses are for living in, not for speculation”. Bringing the real estate sector down to size will slow China’s growth FT Editorial 21 September 2021

The principal explanation for the decline in real interest rates has been high and rising inequality

A paper by Atif Mian, Ludwig Straub and Amir Sufi at the Jackson Hole monetary conference on 27 August illuminates this issue.  The shift in the distribution of income towards the top inevitably raised the overall propensity to save. The analysis starts with estimates of the real “natural rate” of interest, a concept that goes back to the Swedish economist Knut Wicksell.  Stagflation would create devastating problems for weaker borrowers, notably heavily indebted emerging economies. Martin Wolf FT 21 September 2021 Superrika sparare ger ultralåg ränta Viktor Munkhammar DI 2 september 2021

Chinese authorities won’t just let Evergrande implode. Not China’s Lehman moment

The big wigs in the Chinese Communist Party look on the financial crisis as ultimate proof western capitalism is a flawed construct. They are hardly going to allow anything that looks like a repeat on home soil. As Leo Tolstoy didn’t write, all bull markets are alike; each financial crisis is unhappy in its own way. The working assumption is that Chinese authorities will follow the LTCM playbook in dealing with Evergrande. Federal Reserve Bank of New York got the big banks in a room, knocked some heads together and organised a bailout.  Ben Wright Telegraph 21 September 2021    If the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply.  If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds.  Much post-Lehman financial

Ingves: Tror att Kina kan förhindra en finanskris

Sveriges finanskris orsakades av en kollaps av den kommersiella fastighetssektorn. Hur ser han då på sannolikheten att något liknande händer i Sverige som det som nu händer i Kina? – Man ska aldrig säga aldrig, men det är inte så att vi tror att det här är något som ligger i korten alldeles runt hörnet i Sverige, säger Stefan Ingves. SvD 21 september 2021

The mentality of “TINA” — There Is No Alternative to stocks — remains intact

The Evergrande situation came along as the catalyst for a consummation already devoutly wished for by investors: The rally at the end of the New York afternoon showed that the mentality  of “TINA” — There Is No Alternative to stocks — remains intact. Nice charts. John Authers Bloomberg 21 september 2021  

Festen inte över än – nu har börsen slagläge

Henrik Mitelman DI 21 september 2021 Eventuella nedgångar ska ses som långsiktiga köplägen Henrik Mitelman DI 23 augusti 2021

Magdalena Anderssons besked - överskottsmålet nås inte igen förrän 2023

När en plan saknades även i våras riktade Finanspolitiska rådet kritik.  SvD 20 september 2021 Hur blev det så att I Sverige är hård budgetdisciplin, ända sedan 1990-talskrisen, närmast en statsreligion?  ”Magdalena Andersson fick rätt. De stora satsningarna är möjliga för att vi har sparat i ladorna under de goda åren.”  Sparat i ladorna? Hm. Var exakt står dessa lador? Och vad innehåller dom? Jo, jag förstår att det är bildlikt menat. Men det är ändå vilseledande och fel. Produktionen kan användas för konsumtion eller investeringar. Vi sparar för framtiden genom att investera. Något annat sätt finns inte.

The $52 Trillion Bubble: China Grapples With Epic Property Boom

The central problem in China is that buyers have figured out the government doesn’t appear to be willing to let the market fall. If home prices did drop significantly, it would wipe out most citizens’ primary source of wealth and potentially trigger unrest. That gives Chinese citizens who have enough money an incentive to keep buying because they believe property in large cities will remain the safest investment in China, regardless of the health of the broader economy. Nice pic. WSJ 16 July 2020  

– På lite längre sikt tror vi Stockholmsbörsen är på väg uppåt men kortsiktigt finns det risk för att det forsätter vara skakigt,

säger Maria Landeborn, börsanalytiker på Danske Bank. ”Huvudscenariot är att det /Evergrande/ inte är ett nytt Lehman Brothers”, säger hon. SvD 20 september 2021 – Det har varit väldigt lätt att tjäna pengar på börsen och det senaste året har varit exceptionellt. Men jag är ändå fortsatt positiv till börsen och den kan mycket väl stiga mer, säger Maria Landeborn SvD 11 maj 2021  

Hur blev det så att I Sverige är hård budgetdisciplin, ända sedan 1990-talskrisen, närmast en statsreligion?

I Sverige är  hård budgetdisciplin, ända sedan 1990-talskrisen, närmast en statsreligion. Även om de flesta etablerade ekonomer också i USA skakar på huvudet – och varnar för inflation – har modern monetary theory en annan status i amerikansk ekonomisk debatt än i den svenska. New York Times berättade nyligen att John Yarmuth från Kentucky, ordförande i kongressens budgetkommitté, har ”blivit fullständigt MMT”. Huvudpoängen som MMT-skolan gör är att ett lands ekonomi inte ska jämföras med ett hushålls.   Göran Eriksson, SvD 19 september 2021 Kommentar RE: Budgetdisciplinen blev statsreligion sedan den tidigare statsreligionen, den fasta växelkursen, hade havererat. De ansvariga ville inte erkänna att krisen berott på den fasta växelkursen utan odlade myten om att krisen berott på underskottet i statsfinanserna, därav enigheten om sparpaketen.  John Hassler, professor och då vice ordförande i Finanspolitiska Rådet, en av stats


 What kind of a moment will the Evergrande Moment be?  Will it be a Minsky Moment, akin to the Lehman collapse?  Or will it be more akin to the LTCM Moment? John Authers Bloomberg 20 september 2021 Interest payments on two Evergrande notes come due Thursday, a key test of whether the developer will continue meeting obligations to bondholders even as it falls behind on payments to banks, suppliers and holders of onshore investment products. Investors are pricing in a high likelihood of default, with one of the notes trading at less than 30% of face value. Bloomberg 19 september 2021 The Big Short Michael Burry Warns China’s Evergrande Debt Crisis Potential Meltdown! The Money GPS  19 sep. 2021 The Biggest Financial Credi

Why have central banks’ massive doses of bond purchases in Europe and the United States had so little effect on the general price level?

A plausible generalization is that increasing the quantity of money through QE gives a big temporary boost to the prices of housing and financial securities, thus greatly benefiting the holders of these assets.  A small proportion of this increased wealth trickles through to the real economy, but most of it simply circulates within the financial system. Keynes argued that economic stimulus following a collapse should be carried out by fiscal rather than monetary policy.  So, the reason why QE has had hardly any effect on the general price level may be that a large part of the new money has fueled asset speculation, thus creating financial bubbles, while prices and output as a whole remained stable. One implication of this is that QE generates its own boom-and-bust cycles. Minsky would view QE as an example of state-created financial instability.  Robert Skidelsky Project Syndicate 15 September 2021

Losses in eight of the last 10 sessions have pushed the stock market to a level...

where the psychology of dip-buying may finally get a meaningful test. Bloomberg 17 September 2021

Covid Showed Us What Keynes Always Knew - Adam Tooze

How the pandemic and events of the last decade upended economic policy. Ezra Klein So you’ve written that one of the central takeaways of the last year and a half is that, quote, “John Maynard Keynes was right when he declared, during World War II, that anything we can actually do, we can afford.”  So if you have 100 jet planes that you can make, and you only have, quote unquote, “money” for 80 of them, the government can create the money for 100. But if you want 120 jet planes, and you can only make 100, then you can’t.  Adam Tooze We’re in a gray zone. There’s no longer one best way. There’s no longer a Washington consensus that you can easily subscribe to. There’s a sort of maneuvering. And it’s somewhere between one size fits all, which we’ve abandoned, or one policy fits every situation, which we’ve also abandoned, and anything goes. And figuring out that space is what we all have to do going forward from here, I think. The Ezra Klein Show Friday, September 17th, 2021 https://www.

China Evergrande Group turned billions of dollars in borrowed money into the dream of homeownership for millions of Chinese citizens

It launched project after project in every Chinese province, selling apartments years before they were completed and scratching together enough cash to stay just ahead of massive interest bills. The party has ended.  Years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the giant developer on the brink of collapse.  WSJ 18 September 2021 Evergrande Group har skulder på 305 miljarder dollar, motsvarande drygt 2 600 miljarder kronor.  

En uppenbar lärdom är att den tidigare ensidiga inriktningen på penningpolitik, det vill säga sänkta räntor, nu bör kunna förpassas till historiens bakgård

Pontus Braunerhjelm, forskningsledare Entreprenörskapsforum och professor Blekinge Tekniska Högskola (BTH) och KTH, DI 17 september 2021 Nu?  Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken. Rolf Englund blog 5 december 2009

P-38 Lightning

USA överraskar åt fel håll. Gapet betyder inte att stagflationen står för dörren men

 Den som är dystopiskt lagd skulle kunna ta detta till intäkt för att stagflationen är på väg att göra en ovälkommen comeback. Denna kombination av stagnerande tillväxt och hög inflation gjorde på sina håll 1970-talet till ett i ekonomiska termer förlorat årtionde. Viktor Munkhammar DI 17 september 2021

US Trade Balance: Goods and Services Nice chart

Bild U.S. Census Bureau and U.S. Bureau of Economic Analysis, Trade Balance: Goods and Services, Balance of Payments Basis [BOPGSTB], retrieved from FRED, Federal Reserve Bank of St. Louis;, September 15, 2021. Stein's Law: If something cannot go on for ever it will stop.

Dags för en förnyad debatt om ett svenskt deltagande i euro­samarbetet

Sverige valde genom folk­omröstningen 2005 att stå utanför valuta­unionen /RE: Det var 2003/ Det är hög tid att bestämma sig för vilken roll Sverige ska ha i Europa. Sven Hegelund, tidigare stats­sekreterare i finans­departementet (1999–2002, under regeringen Persson), författare till den nyutkomna boken ”Intressanta tider. Ekonomi och geopolitik i det 21:a århundradet” SvD 15 september 2021 - Jag vill inte ha en federativ utveckling. Svenska folket har inte gått med i en federation.  - Logiken i det hela rör sig i federativ riktning... Sch! säger Kohl åt mig när jag tar upp det Prodi, Göran Persson och federalismen Intressanta tider av Sven Hegelund Ingvar Carlsson om kronkursförsvaret 1992: - I efterhand står det klart vad läget egentligen krävde. Det fanns en snabb och effektiv åtgärd som i tid had

Banks. Consider one crucial indicator of financial strength: equity capital

Banks avoided debilitating losses in large part because the Fed and the Treasury pledged trillions of dollars to stabilize markets and help borrowers make good on loans.  Authorities successfully pushed for more capital in the aftermath of the 2008 financial crisis, but never went far enough.  Capital levels have waned along with political will: As of June 2021, that tangible equity ratio stood at around 6.4%.  Fed all but ended the formerly annual “living wills,” challenging banks to explain how, if they were failing, authorities could dismantle them quickly with minimal collateral damage.  Now, for the largest institutions, the full plans are required only once every four years. Imagine trying to wind down Lehman Brothers in 2008 using instructions drafted in 2004. Bloomberg Editorial Board 14 september 2021 IMF Basel Lord Turner https://englundmacro.blogspot.c

What is the “Washington Consensus? Did it fail?

 "Washington Consensus" was coined in 1989 by economist John Williamson of PIIE. He was describing a list of policies that had gained support among Latin American policymakers in response to the macroeconomic turbulence and debt crisis of the early to mid-1980s. These policies also had the backing of experts at Washington's international institutions—especially the International Monetary Fund and the World Bank, as well as the US Treasury—to help the recovery from the debt crisis. After decades of turbulence in the global economy and countries' mixed successes at policy reforms, the phrase "Washington Consensus" raises red flags among some economists while providing enduring wisdom among others. Williamson himself came to question some of the consensus precepts but argued that critics had distorted them for political purposes. Douglas A. Irwin (PIIE) and Oliver Ward (PIIE) September 8, 2021