The German economic model has been destroyed

First, Germany carved out a role as the supplier of China’s industrial revolution, supplying the machine tools for its factories, the electronics for its engineers, and the cars, trucks and trains for its transport network. The trouble is, the tables have now turned. 

Next, the cheap energy has come to an end.

A hyper competitive Poland right on its border is now building the nuclear generators it needs to fuel factories that are gaining ground on German rivals.

The euro is no longer the advantage it once was.

 

When the single currency was launched in 1999, the Deutschmark locked in an artificially low exchange rate. Coupled with wage restraint, that allowed German factories to effortlessly undercut rivals in France, Italy and Spain. 

Much of the rest of the continent was ruthlessly deindustrialised, but Germany boomed. It was great while it lasted, at least so long as you were a worker in Stuttgart instead of Seville. 

After two decades of painful adjustment, however, that process has come to an end. Indeed, countries such as Greece that suffered mightily from German competition are now out-performing it.

None of those trends can be reversed easily. The debt brake stops the government from spending, and there is no sign that the hapless coalition led by chancellor Scholz has any idea how to create a leaner, digital, entrepreneurial economy.

Telegraph 8 December 2023

https://www.telegraph.co.uk/business/2023/12/08/german-economic-model-destroyed-hubris/

The colonial era entered its death throes after World War II.

 From 1945 through the 1960s, a global order in which European powers took political control of other countries — occupying them with settlers, subjugating the local populations and exploiting the land and its inhabitants for economic gain — unraveled. 

Dozens of states in Asia and Africa threw off colonial overlords. Colonialism, once equated by the West with civilizing progress, became synonymous with iniquity - ondska.

More than a half-century later, a broad battle over colonialism and its legacy has restarted.

In African states, leaders of several coups in recent years have justified their actions in part as a response to a neocolonial order marked by Western dominance of international capitalism, technology and finance that, they say, accomplishes by other means what colonial armies once achieved through force.

NYT 10 Decenber 2023

https://www.nytimes.com/2023/12/10/world/europe/colonialist-word-gaza-ukraine.html

ChatGPT The Economist word of the year for 2023

 This was the year of artificial intelligence (ai), and not any kind but generative ai, which can churn out text and images with only some simple prompts. The breakthrough in particular of large language models (llms) has been stunning.  

Generative would be the word of the year if it were more widely known and used beyond the experts who follow ai. But since its launch in 2022, one term in particular—ChatGPT—has been on the lips of everyone from journalists to cab drivers wondering what all the fuss is about. 

The Economist 7 December 2023

https://www.economist.com/culture/2023/12/07/our-word-of-the-year-for-2023

Rates slip

 

Bloomberg 7 December 2023

Wall Street’s AI Craze Drives Nasdaq 100 Up 1.5%

A rally in megacaps spurred a rebound in stocks on speculation the artificial-intelligence boom will keep fueling market gains.

Traders brushed off any jitters surrounding the outlook for Friday’s US jobs report to reignite the trade that’s driven the Nasdaq 100 up over 45% this year. 

Optimism around AI resurfaced, with Alphabet Inc. up 5% a day after Google released Gemini, the “largest and most-capable AI model” it has ever built. 

Advanced Micro Devices Inc. also rallied after pledging its new accelerator chips will run AI software faster than rival products.

Updated on 

7 december 2023 at 21:23 CET

Stock Market Today: Dow, S&P Live Updates for December 7 - Bloomberg

”Global Tipping Points Report”

 En så kallad tröskelpunkt innebär att ett klimat- eller ekosystem på kort tid går från ett tillstånd till ett annat. Det skapar en dominoeffekt där andra klimatsystem påverkas, och där konsekvenserna kan bli okontrollerbara. 

Ett exempel är Grönlandsisen som smälter i högre takt än vad forskarna hittills trott. När tröskelpunkten är passerad kommer inlandsisen aldrig att återhämta sig, utan avsmältningen fortsätter även om vi skulle få uppvärmningen av planeten under kontroll. 

– Det kan leda till migration, politisk instabilitet och ekonomisk kollaps, säger Tim Lenton vid Exeter University.

6 december 2023

https://www.svt.se/nyheter/utrikes/mork-klimatrapport-fem-klimatsystem-nara-kollaps--fy2i9h

Tipping Points 

https://englundmacro.blogspot.com/search/label/tipping

Den tyska budgeten för 2024 kommer inte att hinna klubbas före årsskiftet.

 Budgetturbulensen i Tyskland uppstod när regeringen ville stödja grön omställning, elberoende industri och utsatta hushåll med krisfonder som tillkommit under pandemin. Den tyska författningsdomstolen ansåg att planen bröt mot grundlagen.

Finansminister Lindner har sagt att 17 miljarder euro, motsvarande 192 miljarder kronor, saknas i nästa års tyska budget.

SvD/TT 7 december 2023

https://www.svd.se/a/APK5KE/tyska-budgeten-hinner-inte-antas-i-tid

Finance minister Christian Lindner on Thursday took the dramatic step of suspending the debt-brake for 2023 to cover part of the problem, invoking an emergency clause to justify raiding the Economic Stabilisation Fund for money to pay for Germany’s energy price cap.

“We put the expenditure for the price cap on a constitutionally secure basis,” he said.

It remains to be seen whether the judges at the Verfassungsgericht agree.

The fiscal drama in Germany makes Europe’s monetary union even less workable. It demolishes any last hope that Berlin will let the EU’s €800bn Recovery Fund evolve into a proto-EU treasury. 

There will be no joint debt issuance to underpin the euro, and no Hamiltonian fiscal union. The gaping hole in the construction of the single currency will remain. 

The debt ratios of Germany and France will diverge ever further, putting intolerable strain on the EU’s central axis.

Ambrose Evans-Pritchard 24 November 2023

https://www.telegraph.co.uk/business/2023/11/24/germanys-debt-brake-drama-poison-deutschland-inc/

The verdict /of Germany’s constitutional court /focused attention on the way Scholz has used a series of multibillion-euro off-budget funds to get round Germany’s strict curbs on new borrowing.

One such vehicle was the €200bn Economic Stabilisation Fund (WSF), which was set up during the pandemic but then used during last year’s energy crisis to subsidise gas and electricity prices.

The funds allowed Germany to circumvent a rule known as the “debt brake”

https://www.ft.com/content/5e943881-9368-47f1-9c99-b271e5396e1c

The SPD and Greens want the so-called debt brake to be suspended again, which the FDP rejects.

German budget chaos: No vote on 2024 spending this year – DW – 12/07/2023

Den tyska regeringen överväger att göra en drastisk översyn av budgeten för nästa år, inklusive minskade restriktioner för nettoupplåning, i spåren av förra veckans domstolsbeslut. 

https://www.di.se/live/tyska-regeringen-overvager-att-latta-pa-skuldbromsen/

German Constitutional Court

The German constitutional court and EU (nejtillemu.com)

Germany’s constitutional court has repeatedly proved its readiness to be a pain in the backside of want-to-get-it-done policymakers. It has long been weaponised by opponents of the European Central Bank

Tyska domare kommer att låta det passera vad lagen än säger

Till och med de smartaste EU-advokaterna har ännu inte hittat sätt att förena ett rent räddningsinstrument med no-bailout-klausulen i Maastrichtfördraget, och hitta ett sätt att avvärja en kamp i den tyska författningsdomstolen.

https://englundmacro.blogspot.com/2023/11/rod-oppning-red-opening-18-19-november.html

EU prepares to reform its fiscal rules, informally known as the stability and growth pact

Englund: EU prepares to reform its fiscal rules, informally known as the stability and growth pact (englundmacro.blogspot.com)

Är Stabilitetspakten Stupid? Olli Rehn, Prodi och Persson

Englund: Är Stabilitetspakten Stupid? Olli Rehn, Prodi och Persson (englundmacro.blogspot.com)

S-ledaren Tage Erlander hade år 1967 insett att marknadsbaserade hyror var den enda lösningen

på problemet med de växande bostadsköerna. En proposition om att avskaffa hyresregleringen låg i princip klar.

Då satte sig Folkpartiet på tvären. Partiledaren Bertil Ohlin var egentligen en varm förespråkare av marknadshyror, men valde av taktiska skäl att kritisera regeringen för att inte avskaffa hyresregleringen på ett socialt ansvarsfullt sätt.

Det var ett historiskt misstag.

https://www.expressen.se/ledare/liberalerna-kan-gottgora-ett-historiskt-misstag/

Markets concerned about a possible recession in 2024

Markets may be willing to risk another beating from the Fed because they are more concerned about a possible recession in 2024. 

This would align with developments in gold and oil prices but appears inconsistent with a surge in stock prices.

Alternatively, the markets might believe that while the Fed officially targets a 2 per cent inflation rate, it might understandably tolerate a slightly higher figure (3 per cent)

Interest rates could well remain unchanged for longer than what the futures market currently implies. 

Mohamed El-Erian 7 December 2023

https://www.ft.com/content/63a4e0ca-ae62-4b35-be18-d27afe4210f8

Jakarta, the fastest-sinking megacity on the planet.

Venice is sinking. So are Rotterdam, Bangkok and New York. But no place compares to Jakarta

Over the past 25 years, the hardest-hit areas of Indonesia’s capital have subsided more than 16 feet. The city has until 2030 to figure out a solution, experts say, or it will be too late to hold back the Java Sea.

Bloomberg 6 December 2023

https://www.bloomberg.com/features/2023-jakarta-sinking-salim/

Jakarta has a population of 10,679,951

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

New York City is sinking due to weight of its skyscrapers

City is sinking approximately 1-2mm each year on average, worsening effects of sea level rise and flooding threat

https://www.theguardian.com/us-news/2023/may/19/new-york-city-sinking-skyscrapers-climate-crisis

Is Venice Sinking? Here's What We Know As Of 2023

Here's why you should see the City of Canals before it's too late.

https://www.thetravel.com/is-venice-sinking/

  

By July ECB rate will be below 3.0%

Markets worldwide are positioning themselves for rate cuts in the new year, creating sharp falls in yields and a boom for risk assets. 

But nowhere has that shift been more dramatic than in the eurozone.

Its policy rate stands now at 4.0%, having been raised most recently in September

By July of next year, the overnight index swaps market now suggests that it will be below 3.0%. 

Swaps have slashed 50 basis points from that forecast in barely a week:

Monetarists’ arguments about the problems caused by a sharply decreasing money supply, in real terms

After a big expansion at the beginning of the pandemic, the quantity of money is contracting to an extent never before seen since the creation of the euro in 1999

John Authers Bloomberg 7 december 2023 

https://www.bloomberg.com/opinion/articles/2023-12-07/europe-rate-hopes-make-markets-believe-again-after-years-of-disappointment

Investors bet on rapid ECB rate cuts as economic outlook darkens

Core inflation — which excludes energy and food to provide a better gauge of underlying price pressures — remains at 3.6 per cent, while the eurozone economy has been stagnant for most of the year.  

FT 7 December 2023

Investors bet on rapid ECB rate cuts as economic outlook darkens (ft.com)

If markets are right, the ECB will be the first among major central banks to cut next year

With rapidly weakening inflation, a feeble economy, and one hawkish policymaker changing tack, traders are heaping bets on a reduction as soon as March. 

They’re now seeing the rate falling to 2.5% by the end of 2024; just last week, they envisaged borrowing costs staying above 3%.

https://www.bloomberg.com/news/articles/2023-12-07/ecb-s-lagarde-squeezed-as-markets-boost-2024-rate-cut-bets

ECB 

Englund: ECB (englundmacro.blogspot.com)

Chocksänkning av räntan väntas 2024 säger Amanda Sundström, räntestrateg på SEB

 – Nu börjar marknaden – när de räknar med sänkningar på 1,50 procentenheter på ett år – prisa in en tvärnit, säger hon.

SvD/TT 6 december 2023

https://www.svd.se/a/rlxGxK/chocksankning-av-styrrantan-vantas-2024

China’s First Next-Gen Nuclear Reactor Enters Commercial Operations

China is building more nuclear plants than any other country

The unit differs from traditional nuclear plants by heating up helium instead of water to produce power, an important consideration for inland plants given increasing concerns over climate change-fueled droughts. 

It’s also designed to shut down automatically if something goes wrong — in contrast to some older systems that required electricity to trigger safety measures, which is what led to the Fukushima Daiichi accident in Japan in 2011.

Bloomberg 6 December 2023

https://www.bloomberg.com/news/articles/2023-12-06/china-s-next-gen-nuclear-reactor-enters-commercial-operations

China’s carbon emissions have either peaked already or will do this winter

The country’s target of net zero by 2060 is likely to be achieved a decade earlier than previously assumed, and perhaps earlier than in Europe. 

This is a remarkable turn of events.

Ambrose Evans-Pritchard 27 November 2023

https://englundmacro.blogspot.com/2023/12/we-no-longer-need-cop-circus-technology.html

A wave of corporate defaults was anticipated this year — but didn’t happen.

 That doesn’t mean it won’t.

Financial strength has been declining for a while, a trend that was only briefly interrupted by the attempted cleanup in the wake of the Global Financial Crisis in 2008.

The “post-Volcker” era of low interest rates has seen companies grow more and more accustomed to taking risks with their financial health, and getting away with it

Andronoudis stresses that the Altman system may be outdated by now, as intangible assets make up a far greater share of balance sheets and generally do have value. But the idea that credit quality is degrading still stands.

“zombies” — companies that are no longer able to grow or even produce enough profits to cover interest expenses, but can survive because their interest costs are so low.

The effect of higher yields (and therefore lower bond prices) on banks’ investments. As Societe Generale SA demonstrates here, banks’ unrealized losses remain alarmingly high, while charge-offs on commercial real estate loans, which have grown significantly in the years since the GFC, have only just started to pick up

Arguably the single biggest factor helping to avert bankruptcies to date has been the success of corporate treasurers in negotiating long-term debt when they had the chance during the protracted low interest rates that followed the pandemic

Companies Are Going Broke Gradually, Not Suddenly

https://www.bloomberg.com/opinion/articles/2023-12-06/corporate-defaults-companies-are-going-broke-gradually-not-suddenly

Gradually, then suddenly - John Hussman

“In the face of a breathtaking disconnect between Main Street and Wall Street, largely based on overconfidence in free money, my sense is that there remains a crisis ahead that will emerge ‘gradually, then suddenly,’” he wrote, referring to Ernest Hemingway’s famous quote from “The Sun Also Rises” about going bankrupt, “gradually, then suddenly.”

https://englundmacro.blogspot.com/2020/06/gradually-then-suddenly-john-hussman.html

Buying an S&P 500 tracker means investing 30% of the money in just seven stocks

 Without Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla and Meta Platforms—the high-growth, technology-related companies that analysts have dubbed the “Magnificent Seven”—the S&P 500 would only be up 9% this year, rather than 19%. 

Some 44% of stocks in the index are down this year.

This not only runs counter to the principle of diversification, but it also means the most important stocks investors own are pricey. The seven stocks have posted strong profits lately, but they are still trading at an average of 32 times forward earnings,

That poses a conundrum for investors, who increasingly use index funds. 

WSJ 5 December 2023

https://www.wsj.com/finance/stocks/how-long-can-the-magnificent-seven-stocks-hold-the-line-0e9b5485

The Fangs have delivered spectacularly in the past couple of years. 

https://englundmacro.blogspot.com/2017/11/the-fangs.html

Indexfonder är en fara för aktiemarknaden och gör börsen till ”rena Solvalla”, enligt finansmannen Christer Gardell

Being wrong and alone is what gets asset managers fired.

https://englundmacro.blogspot.com/2023/08/indexfonder-ar-en-fara-for.html

We no longer need the Cop circus – technology and markets are already solving the climate problem

Whether the world cuts carbon emissions fast enough to secure a 1.5-degree planet depends on the arms race for clean-tech dominance between the US and China.

It does not depend significantly on anything done, and even less said, at the Cop28 summit in Dubai, 

“A global, irreversible, solar tipping point may have passed where solar energy gradually comes to dominate global electricity markets, without any further climate policies,” concluded a recent paper by the World Bank and Europe’s leading universities.

The “technological learning rate” of solar, wind, and now batteries is so relentless that a 24/7 mix is already cheaper than new coal in most of the world, and will become massively cheaper almost everywhere over time.

Ambrose Evans-Pritchard Telegraph 5 December 2023

https://www.telegraph.co.uk/business/2023/12/05/cop28-circus-technology-markets-solve-climate-crisis/

China’s carbon emissions have either peaked already or will do this winter,

seven years ahead of schedule. They may plateau for a year or two but will then go into exponential decline for mechanical and unstoppable reasons.

The country’s target of net zero by 2060 is likely to be achieved a decade earlier than previously assumed, and perhaps earlier than in Europe. 

This is a remarkable turn of events.

Ambrose Evans-Pritchard 27 November 2023

China’s CO2 emissions may be falling already, in a watershed moment for the world (telegraph.co.uk)

 

Big central banks are going to keep shrinking their balance sheets next year

 ... pulling money out of the financial system, even if the fight against inflation looks to be won and interest rate cuts begin. Their aim is to restore the role of markets in supplying and setting the price of money.

It’ll be a bumpy ride. The Federal Reserve and others will be testing a great uncertainty: Just how much in central bank funds do banks need to feel comfortable? 

The last time the Fed got near this threshold in September 2019, short-term interest rates in money markets went haywire, spiking higher and leaving some hedge funds scrambling for cash.

Bloomberg 5 December 2023

https://www.bloomberg.com/opinion/articles/2023-12-05/we-ll-soon-see-if-new-fed-defenses-work-against-money-mayhem

Fed balance sheet shrinks by $1tn

 By removing one of the largest buyers from government bond markets, the Fed’s balance sheet reduction — known as quantitative tightening — adds to the supply of debt that private investors have to absorb.

https://englundmacro.blogspot.com/2023/08/fed-balance-sheet-shrinks-by-1tn.html

Dustins miljardemission lyckad – tar in 1,75 miljarder

https://www.dagensps.se/bors-finans/dustins-miljardemission-lyckad-tar-in-175-miljarder/

Framtiden för massturism med flyg förefaller inte vara oviss

Globalt ligger flygtrafiken nu på 98,2 procent av nivåerna som var innan pandemin. Det rapporterar flygorganisationen Iata.

Iata, eller Internatial Air Transport Association, representerar ungefär 320 flygbolag som tillsammans står för 83 procent av den globala flygtrafiken.

https://www.di.se/live/flygtrafiken-fortsatter-att-aterhamta-sig-efter-pandemin/

Det är märkligt att så många vägrar att inse att massturism via flyg står inför en dramatisk nedgång i dessa utsläppens tidsålder.

Det talas visserligen om grön flygfotogen och elektiska flygplan, men det är nog mest fantasier eller projekt där huvudmännen vill ha skattepengar eller dito från aktiespekulanter.

Flygbolagen fortsätter att beställa flygplan som om framtiden skulle bli som den före pandemin.

...

while fossil fuels will still be used in 2050 and even 2100, our reliance on them will shrink to a fraction of today’s dependence. 

COP28: Climate Solutions Are Debatable, But Science Is Inescapable - Bloomberg

Airbus might need state backing for new aircraft programme to replace A320

https://www.ft.com/content/3778eba5-0c11-419d-a10f-1f94cca185c7

The Boeing Company Official Website

Airbus - Wikipedia

IATA - Home

Det behövs åtgärder mot massturism, i Sverige och i många andra länder.

För att förebygga och för att hantera konsekvenserna av att allt fler reser och för att vi besöker samma platser som alla andra.

2018 gjorde vi 1,4 miljarder internationella resor

https://resamedvetet.se/atgarder-mot-massturism/

Mass Tourism » Concept, Meaning, History, Advantages, Disadvantages (tourismbeast.com)

Bond Market Euphoria Shifts

 to Debate Over How Low Fed Will Need to Go

Clues sought for signs of soft or hard landing

Futures signal at least 1.25 percentage point of cuts in 2024

Bloomberg 3 December 2023

https://www.bloomberg.com/news/articles/2023-12-03/treasury-bond-euphoria-shifts-to-market-debate-on-fed-rate-cut-path

‘A Death in Malta’ Review: Lost in a Sea of Corruption

Since its admission to the European Union in 2004, the country has been the smallest by area (121 square miles) and population (542,000) in the bloc. 

Meet murky little Malta, democratic Europe’s notable outlier

It sells passports-of-convenience to foreigners of high net worth—often from post-Soviet republics.

Its politicians are in a venal class of their own, more unaccountable than any others in the eurozone. And its rule of law, rickety at best, is shockingly derelict for an EU country. 

This isn’t just the judgment of fastidious outsiders, predisposed to look askance at Malta. It’s how Paul Caruana Galizia, a young Maltese journalist, portrays his native land in “A Death in Malta.” 

And he does so for reasons that are both personal—specifically, the 2017 murder of his mother by hitmen with links to the country’s ruling Labour Party—and fiercely principled.

WSJ 3 December 2023

https://www.wsj.com/arts-culture/books/a-death-in-malta-review-lost-in-a-sea-of-corruption-01fb38e5

A Sunny Place for a Shady Online Business

https://englundmacro.blogspot.com/2021/12/a-sunny-place-for-shady-online-business.html

China Big rebound in short-term interbank lending, particularly to nonbank borrowers

—a category which includes funds, asset managers and “shadow banking” trusts such as the one owned by Zhongzhi that defaulted on its obligations in August.

https://www.wsj.com/finance/pressure-is-building-in-chinas-financial-plumbing-c8e85bc5

China’s shadow-banking industry threatens its financial system

https://englundmacro.blogspot.com/2023/08/chinas-shadow-banking-industry.html

China Evergrande Avoids a Debt Disaster—for Now

The company was given until late January 2024 to reach a debt restructuring deal

WSJ Dec. 4, 2023 

https://www.wsj.com/finance/china-evergrande-avoids-a-debt-disasterfor-now-9f9e7fad

Moody’s Cuts China Credit Outlook to Negative on Rising Debt

https://www.bloomberg.com/news/articles/2023-12-05/moody-s-cuts-china-credit-outlook-to-negative-on-rising-debt

U.S. cities can’t access the wind and solar power being developed in remote sites hundreds of miles away.

 Now a group of investors is betting on a startup that builds massive transmission lines to carry renewable electricity to urban areas.

The high-voltage transmission lines needed to carry clean energy long distances are notoriously difficult to get permitted, in part because of fierce resistance from local residents, and have become a major obstacle for the country’s climate goals. 

WSJ 4 Decenber 2023

https://www.wsj.com/finance/investing/the-new-green-investment-getting-clean-energy-to-big-cities-1586e785

S.O.S for the U.S. Electric Grid

PJM Interconnection, one of the nation’s largest grid operators.,sounds the latest alarm that fossil-fuel plants are shutting down without adequate replacement power. 

WSJ  Editorial Feb. 26, 2023 

https://englundmacro.blogspot.com/2023/02/sos-for-us-electric-grid.html

Bill Gates Says Chances of Meeting 2C Warming Goal Fading Fast

 The billionaire clean-energy investor said it would be “fortunate” if temperature rise stays below 3C.

A planet that warms by 3C from pre-industrial levels could regularly expose up to 50 million people to temperatures that are beyond human survivability, a 2018 study in Lancet Planetary Health showed. 

New York City might experience three once-in-a-century flooding events every year while as many as 52 times more people would face dangerous heat in African cities. 

The amount of land destroyed by wildfires globally would double and the Amazon rainforest would turn into grassland.

Bloomberg 3 December 2023

https://www.bloomberg.com/news/articles/2023-12-03/cop28-bill-gates-says-world-probably-won-t-meet-2c-climate-warming-goal

EU:s kritiker och fiender beskriver dagens bygge som början till en hotfull superstat.

Nästa EU-toppmöte om två veckor. På dagordningen står utvidgning av medlemskretsen, som motiveras av det nya läget i Europa. För Ukraina och Moldavien är det en mycket angelägen prioritet.

Efter 50 års flykt framåt kan man idag identifiera en serie ackumulerade, olösta grundläggande problem, som jag här bara påminner om i rubrikform: de konstitutionella kriserna (det vill säga legitimitet, maktbalans, befogenheter och beslutsprocesser), finanskriserna, flyktingkriserna, Brexit, klimatkrisen, energiförsörjning, hoten mot den yttre och inre säkerheten.

Genom krishanteringen har initiativet efter hand glidit över till regeringarna i medlemsländerna, som möts i EU:s ministerråd. De föredrar att fatta beslut genom enhällighet, som ger blockerande vetorätt för varje enskilt land och som verkar förlamande.

EU:s kritiker och fiender beskriver dagens bygge som början till en hotfull superstat. En bild som ofta är uppblåst av EU:s egen svulstiga retorik. Men den som tittar bakom fasaden ser att superstaten är en karikatyr. Bärande delar av bygget krackelerar redan. 

Rolf Gustavsson SvD 2 december 2023

https://www.svd.se/a/69aOPr/eu-kan-bli-en-tandlos-studiecirkel

Euro-zone countries haven’t broken the link between public finances and banks 

that dominated the region’s sovereign debt crisis, and investors could refocus on that vulnerability next year, S&P Global Ratings said.

Despite the establishment of common supervision and resolution mechanisms aimed to eradicate such dangers, the entangled relationship that bred turmoil in several members of the single currency is “here to stay,” the company said in a report on Thursday.

Their study looks at how that link could amplify trouble in 2024 amid the impending confluence of recession risks, the reinstatement of European Union debt and deficit rules, and uncertainty on the outlook for interest rates.

https://www.bloomberg.com/news/articles/2023-11-30/euro-zone-crisis-doom-loop-revisited-by-s-p-in-warning-for-2024

Biggest Blowout in Bonds Since the 1980s Sparks Everything Rally

 Yield plunge spurs advance in stocks, credit, emerging markets

Investors see scope for more gains with Fed cuts on horizon

https://www.bloomberg.com/news/articles/2023-11-30/biggest-blowout-in-bonds-since-the-1980s-sparks-everything-rally

Marknaden säker: ECB sänker i april

 Sannolikheten för att Europeiska centralbanken (ECB) efter aprilmötet 2024 har sänkt sina styrräntor med 25 punkter (0,25 procentenheter) är nu i princip 100 procent, om man tittar på prissättningen på räntemarknaden.

Samtidigt börjar allt fler tro att sänkningen kommer redan i mars, där sannolikheten just nu är uppe i 45 procent för en sänkning.

Synen på ECB-räntan nästa år har förändrats snabbt bland spekulanter och investerare

Marknaden säker: ECB sänker i april | SvD

Euroclear - how to apply sanctions on assets linked to Russia

The row underscores the awkward position that Euroclear has found itself in over how to apply western sanctions on assets linked to Russia and its allies over the invasion of Ukraine.

The settlement house is one of the pillars of the global capital market, tracking and finalising millions of securities trades a day. 

It has been withholding payments to and from sanctioned entities in Russia and elsewhere, and has earned more than €3bn this year to October in income related to frozen Russian assets. 

EU leaders plan to spend the money on helping the recovery in Ukraine.

FT 30 November 2023

https://www.ft.com/content/64807c8a-f764-4620-a900-d22e83cb4920

In the 20 months since, however, the western sanctions coalition has got itself into ever more contortions trying to avoid the morally obvious next steps: seizing the reserves and deploying them for Ukraine’s benefit.

The ostensible justification is legal obstacles. But ... The fear that confiscating Russia’s assets will make other non-western countries pull their own reserves out of the west

Martin Sandbu FT 5 Novenber 2023

https://englundmacro.blogspot.com/2023/11/rod-oppning-red-opening-4-5-november.html

Röd öppning Red Opening 29 November 2023

 

According to our simulations, having her own currency would have helped the export of Finland to recover from the GFC and also from the long recession of 2012-2015. 

Moreover, the depreciation of the markka, combined with the strong growth of the world economy in 2016-2018, would have pushed our exports to new heights. 

At the Q1 2020, if we had remained in markka, our exports would have been more than 40 percent higher than what they are now.

Euro, markka and the exports of Finland

2020-06-13  by Tuomas Malinen Eurozone, Recession, Uncategorized

There has been a lively debate on the effect of national currencies on the economic performance of the members of the Eurozone. In 2012, we published a report, where we simulated the potential development of the export of Finland, if we had remained in our own currency, markka. Now we have updated those simulations.

Our updated simulations draw a very straight-forward picture. According to them, our export would have been more than 40 percent higher in Q1 2020, if we had remained in markka.

https://gnseconomics.com/2020/06/13/euro-markka-and-the-export-of-finland/

 "Få har ännu uppmärksammat att EU:s och Sveriges säkerhet nu tvingar fram en utvidgning vars framgång är helt avhängig en stark europeisk centralbank."

Det skriver Stefan Fölster på SvD Debatt.

Haken är att dessa åtta länder, och flera nuvarande EU-länder, för en svajig makro­ekonomisk politik och brister när det gäller rättsstatlighet och korruption. 

Hittills har endast de starka maktmedlen som ECB har fått sedan 2012 kunnat förmå länder att genomföra nödvändiga reformer. 

Därför är en stark europeisk centralbank ett viktigt europeiskt och svenskt säkerhets­intresse.

Sammantaget finns nu mycket goda säkerhetsskäl att främja en stark europeisk centralbank som Sverige helst också skall ha inflytande i.

Stefan Fölster, senior fellow och rapport­författare vid tanke­smedjan Frivärld.

https://www.svd.se/a/BWaB6G/stefan-folster-euron-nodvandig-for-sveriges-sakerhet

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EU:s decembertoppmöte 

EU-länderna ska försöka enas om extrapengar till budgeten och eventuell förhandlingsstart om medlemskap med Ukraina och Moldavien.

Man inleder med att träffa sina kollegor från de EU-sugna länderna på västra Balkan: Albanien, Bosnien och Hercegovina, Kosovo, Montenegro, Nordmakedonien och Serbien.

https://www.svd.se/a/Q7vojV/dubbelt-toppmote-i-eu

Mrs von der Leyen blundered badly in linking Ukraine aid to the EU budget, hoping to use the war as a rocket booster for other ambitions. 

Everything is instead crashing around her.

Ambrose

https://www.telegraph.co.uk/business/2023/11/28/europe-needs-massive-rearmament-outlast-putin-ukraine/

EU förbereder ett katastrofalt misstag

https://englundmacro.blogspot.com/2023/10/eu-forbereder-ett-katastrofalt-misstag.html

Frivärld

https://frivarld.se/sv/

Frivärlds huvudfinansiär och huvudman är Stiftelsen Fritt Näringsliv.

Stefan Fölster, Svenskt Näringsliv: "Det är egentligen inte en Greklandskris utan en bankkris"

https://englundmacro.blogspot.com/2011/06/stefan-folster-svenskt-naringsliv-det.html

Home Prices Hit Fresh Record in September

S&P CoreLogic Case-Shiller National Home Price Index rose 3.9% from a year earlier

https://www.wsj.com/economy/housing/home-prices-rose-to-record-in-september-0203b125

Looks like Fed is all but done in hiking cycle: Jamieson Coote

Swaps are pricing a full percentage point of cuts by end-2024

https://www.bloomberg.com/news/articles/2023-11-29/global-bonds-surge-toward-best-month-since-2008-financial-crisis

 OECD says markets wrong on interest rate cuts

Organisation expects borrowing costs in UK and eurozone to stay high until 2025

https://www.ft.com/content/6d626236-e316-493c-978c-7a15c9fbd400

 

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Röd öppning Red Opening 28 November 2023

How to balance FOMO against overcrowding in the same index-distorting tech giants.

This chart from Apollo Group’s Torsten Slok compares an “S&P 7” index with an S&P 493 that includes all the rest. The gap is astonishing:

Magnificent Seven Need Weight-Loss Plan to Balance FOMO Versus Index Distortions - Bloomberg

The Old Military-Industrial Complex Won’t Win a New Cold War

The West has long assumed that it enjoys a substantial technological advantage over any potential military rival. But for how much longer? 

The People’s Liberation Army is not only challenging the West in terms of conventional and nuclear weaponry — China’s navy is now the biggest in the world, and its nuclear arsenal may reach 1,000 warheads by 2030, according to the US Department of Defense. 

It is roaring ahead in high-tech. China has overtaken the West in hypersonic missiles — those capable of traveling at five times the speed of sound and evading air defenses. It is also pioneering lasers, orbiting space robots and high-altitude balloons.

The Old Military-Industrial Complex Won’t Win a New Cold War With China - Bloomberg

FI fastighetsbolagen kan behöva minska skulderna med 100 miljarder

https://www.di.se/live/fi-varnar-fastighetsbolagen-kan-behova-minska-skulderna-med-100-miljarder/

FI  bedömer att det osäkra läge vi befinner oss i kommer att fortsätta ett tag framöver. 

Företag och hushåll anpassar sig fortfarande till de högre räntorna och vi har inte fullt ut sett effekterna i det finansiella systemet och ekonomin som helhet. 

https://www.di.se/live/fi-har-inte-fullt-ut-sett-effekterna-av-hogre-rantor/

Stabiliteten i det finansiella systemet (2023:2): 

Anpassningen till ett högre ränteläge inte klar

https://www.fi.se/sv/publicerat/rapporter/stabilitetsrapporter/2023/stabiliteten-i-det-finansiella-systemet-20232-anpassningen-till-ett-hogre-rantelage-inte-klar/

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Elisabeth Svantessons utredning 

Hennes parti tycks inleda ett fotbyte om överskottsmålet. Det är klokt.

Moderaterna har länge stått för det sista betydande motståndet mot ett sänkt överskottsmål. Trots att argumenten tryter.

Retoriken att väl tilltagna skyddsvallar alltid behövs för nästa globala chockvåg ekar tom, när dagens urstarka offentliga finanser mer än väl skulle klara både akuta krisåtgärder och att bygga för framtiden.

Nils Åkesson

Åkesson: Klokt att utreda överskottsmålet (di.se)

Överskottsmålet i de offentliga finanserna ska nu ses över.

Regeringen tillsätter nu en parlamentarisk kommitté som ska analysera hur det ska fungera framöver.

En aspekt är hur finanspolitiken och penningpolitiken ska samspela, det vill säga om överskottsmålet ska anpassas till penningpolitiken.

Riksdagen har tidigare fastställt att nivån på överskottsmålet ska uppgå till en tredjedels procent av BNP i genomsnitt över en konjunkturcykel.

Elisabeth Svantesson (M) tycker att målet har ”tjänat Sverige väl”.

https://www.svd.se/a/JQdzpJ/kommitte-ska-se-over-overskottsmalet

Finansplan – utdrag ur budgetpropositionen för 2024

Publicerad 20 september 2023

Finanspolitiken är i linje med överskottsmålet

Överskottsmålet är ett mål för den offentliga sektorns finansiella sparande. Det finansiella sparandet ska enligt målet i genomsnitt uppgå till en tredjedels procent av BNP över en konjunkturcykel. Målet följs främst upp med det strukturella sparandet. 

En avvikelse från överskottsmålet anses föreligga om det strukturella sparandet tydligt avviker från målnivån det innevarande eller det närmast följande året, dvs. budgetåret.

Under de senaste årens kriser har den ekonomiska politiken präglats av extra ändringsbudgetar. I många fall har det varit motiverat eftersom det har funnits ett behov av skyndsamma åtgärder, men det är viktigt att den ordnade budgetprocessen vidhålls. 

Det har dock funnits en oro att den samlade budgetprocessen håller på att urholkas. 

Över tid har stabila förutsättningar för den svenska ekonomiska politiken tjänat Sverige väl och det har därför varit viktigt för regeringen att återgå till en ordnad budgetprocess. Att säkra ett brett stöd för den ekonomiska politiken skapar förutsägbarhet och stabilitet. Ordning och reda i de offentliga finanserna är en grundförutsättning för en långsiktigt hållbar ekonomisk politik.

För 2023 och 2024 bedöms det strukturella sparandet vara i linje med överskottsmålets nivå. Regeringen bedömer därför att överskottsmålet uppnås. Den aktuella prognosen bygger på beslutade och aviserade reformer och visar på ett förstärkt strukturellt sparande även längre fram i prognosperioden (se tabell 1.3).

Finanspolitiken bidrar till att få ner inflationen

Genom att styra finanspolitiken mot överskottsmålet möjliggör regeringen för penningpolitiken att verka så att inflationen inte stannar kvar på en hög nivå. 

https://www.regeringen.se/informationsmaterial/2023/09/finansplan--utdrag-ur-budgetpropositionen-for-2024/

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

https://englundmacro.blogspot.com/2023/05/alla-gor-plotsligt-helt-om-och-ansluter.html

The Illusion of Knowledg

There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. – John Kenneth Galbraith

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge. – Daniel J. Boorstin

At one point, the host posed a series of questions: What’s your expectation regarding inflation?  Will there be a recession, and if so, how bad?  How will the war in Ukraine end?  What do you think is going to happen in Taiwan?  What’s likely to be the impact of the 2022 and ’24 U.S. elections?  I listened as a variety of opinions were expressed. 

Regular readers of my memos can imagine what went through my mind: “Not one person in this room is an expert on foreign affairs or politics.  No one present has particular knowledge of these topics, and certainly not more than the average intelligent person who read this morning’s news.”  

None of the thoughts expressed, even on economic matters, seemed much more persuasive than the others, and I was absolutely convinced that none were capable of improving investment results.  

And that’s the point.

https://www.oaktreecapital.com/insights/memo/the-illusion-of-knowledge

NOBODY KNOWS ANYTHING

They don’t want to be what investor Mark Kritzman calls “wrong and alone.” 

https://englundmacro.blogspot.com/2022/10/much-better-off-going-with-herd.html

“Unknown unknowns” is a phrase used by former Defense Secretary Donald Rumsfeld 

in a 2002 news briefing, where he said: 

“There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.”

https://englundmacro.blogspot.com/2023/06/us-stocks-head-for-punishing-selloff-as.html

Ukraine’s new enemy: war fatigue in the West

The balance of power in Congress is held by an isolationist wing of the Republican party, especially in the House of Representatives, where one of their sympathisers now serves as the speaker. 

Twice since September Congress has passed a “continuing resolution” to avoid a shutdown of the federal government; and twice it excluded new aid for Ukraine.

The Senate is trying to unlock the assistance in December, before a shutdown looms again in January.

President Joe Biden has requested a supplemental budget of $106bn, of which $61bn is for Ukraine

Since Russia’s invasion America has provided about $75bn in overall aid to Ukraine, and European countries collectively have delivered more than $100bn

https://www.economist.com/europe/2023/11/27/ukraines-new-enemy-war-fatigue-in-the-west

Ukraine and its allies must face, not fear, the war’s current reality. 

They should accept and prepare for a multiyear war and for the long-term containment of Russia instead of hoping for either a quick Ukrainian triumph or, absent that, an imminent negotiated solution. 

https://www.foreignaffairs.com/ukraine/containment-strategy-ukraine

There is a real danger that a fickle and distracted West will let Vladimir Putin get away 

with his conquests in Ukraine, with frightening implications for the credibility of the liberal democracies and the Nato security system in Europe.

Mr Bond has called for a suspension of the Maastricht deficit rules, allowing for wholesale rearmament and a partial “war economy” until Russia is defeated, and universally seen to be defeated.

Nothing of the sort is happening. Rules are rules. Brussels and Berlin insist that the machinery of fiscal contraction must come back into force in January. Any extra spending on defence must be offset by retrenchment elsewhere.

Ukraine is still waiting for F-16 fighter jets. The US and Germany are still withholding cruise missiles.

Mr Rachman said Mrs von der Leyen blundered badly in linking Ukraine aid to the EU budget, hoping to use the war as a rocket booster for other ambitions. Everything is instead crashing around her.

Ambrose Evans-Pritchard

Germany’s debt-brake drama is poison for Deutschland Inc and for Europe’s monetary union

The Scholz government must plug a fiscal hole of €128bn to comply with a ruling by the top court

Finance minister Christian Lindner on Thursday took the dramatic step of suspending the debt-brake for 2023 to cover part of the problem, invoking an emergency clause to justify raiding the Economic Stabilisation Fund for money to pay for Germany’s energy price cap.

“We put the expenditure for the price cap on a constitutionally secure basis,” he said.

It remains to be seen whether the judges at the Verfassungsgericht agree.

The fiscal drama in Germany makes Europe’s monetary union even less workable. It demolishes any last hope that Berlin will let the EU’s €800bn Recovery Fund evolve into a proto-EU treasury. 

There will be no joint debt issuance to underpin the euro, and no Hamiltonian fiscal union. The gaping hole in the construction of the single currency will remain. 

The debt ratios of Germany and France will diverge ever further, putting intolerable strain on the EU’s central axis.

Ambrose Evans-Pritchard 24 November 2023

https://www.telegraph.co.uk/business/2023/11/24/germanys-debt-brake-drama-poison-deutschland-inc/

 The verdict /of Germany’s constitutional court /focused attention on the way Scholz has used a series of multibillion-euro off-budget funds to get round Germany’s strict curbs on new borrowing.

One such vehicle was the €200bn Economic Stabilisation Fund (WSF), which was set up during the pandemic but then used during last year’s energy crisis to subsidise gas and electricity prices.

The funds allowed Germany to circumvent a rule known as the “debt brake”,

https://www.ft.com/content/5e943881-9368-47f1-9c99-b271e5396e1c

 

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