Englund

 What on earth will happen to US economic policy when Donald Trump becomes president? Trump  promised to end inflation. But he is also pledging to impose tariffs of 60 per cent on China and 25 per cent on Mexico and Canada  Then there is the dollar. Trump’s team considers it very overvalued. Bessent might even call for a special G20 meeting” to reproduce “the 1985 Plaza Accord”. Gillian Tett  Financial Times 13 December 2024 https://www.ft.com/content/79708cf0-687d-4134-8cd5-ed99a75f07b2 The president-elect might want a weaker US currency but market forces are pushing in the other direction One moderating factor here could be that markets have already priced in a lot of Trump. The dollar index is already up 6 per cent since late October.  If not, a period of currency diplomacy by social media lies ahead again. Katie Martin  Financial Times 13 December 2024 https://www.ft.com/content/2e48cc8b-56f1-4a0a-a73e-c22f0cf5b7f3 Trump Wants a Weaker Dollar. That Will...

  What we are seeing is a shift to a multipolar world — not necessarily towards deglobalisation. Capital flows at the same level in late 2023 as in 2008, the last peak. Not all globalisation reflects good or genuine integration. One factor boosting indices, for instance, is the growing use of offshore tax havens, as the economist Brad Setser has noted. https://www.economicstrategygroup.org/wp-content/uploads/2024/10/Setser-Exec-Summary.pdf Gillian Tett Financial Times 22 November 2024 https://www.ft.com/content/1cfa6b3e-16c2-41e9-a1f6-fc90afaa7a98 Gillian Tett - en av mina Gurus https://englundmacro.blogspot.com/2020/07/gillian-tett-en-av-mina-gurus.html What the heck is happening in the Cayman Islands? https://englundmacro.blogspot.com/2019/10/what-heck-is-happening-in-cayman-islands.html The U.S. government and the European Union spent the past decade changing laws and pressuring big multinationals not to book profits in offshore jurisdictions, such as the Cayman Islands, where t...

Gillian Tett FT 10 August 2017 https://englundmacro.blogspot.com/2021/03/on-thursday-august-9-2007-financial.html Varför min sida om Finanskrisen heter hedgefunds.htm Finanskrisen och därmed eurokrisen tog sin början i Frankrike, när tre hedgefonder tillhöriga Frankrikes största bank, BNP Paribas, inställde betalningarna i augusti 2007. Det var en händelse som jag tyckte förtjänade en ny egen sida på min website. https://englundmacro.blogspot.com/2013/08/varfor-min-sida-om-finanskrisen-heter.html

  That Canadian insurance company known as Manulife does not often attract attention. This week, however, it caused a frisson in the real estate world.  Shortly before Jay Powell, Federal Reserve chair, announced that the central bank was keeping benchmark rates at 5.25 per cent to 5.5 per cent, Colin Simpson, Manulife’s chief financial officer, revealed that the group had written down the value of its US office investments by 40 per cent from a pre-Covid peak.  However, Wednesday’s Fed meeting underscored a key point: Powell’s priority now is not to protect CRE, but to keep inflation under control  Newmark estimates that there is now around $1.3tn of troubled CRE debt, of which $670bn matures in the next two years. Around a third of this debt pile was originated when rates were rock-bottom in the pandemic Gillian Tett 21 March 2024 https://www.ft.com/content/12e0c608-25c2-41b3-829a-c4e85d9b54fa Expend and pretend - Banks need to prepare https://englundmacro.blogspot...

 “Central bankers should relax their 2 per cent inflation target and assume a wider stabilising role,” I doubt financial traders will pay any attention; to them Unctad is merely a stodgy bureaucracy. I have repeatedly heard muttered by public and private sector voices: is there any point in retaining that two per cent target in a world where inflation seems likely to remain above this level for the foreseeable future — even if it is “only” around four? Or as one Fed regional president told me this summer, after touring local companies: “Everyone keeps asking if three [per cent] is the new two.” problem for central bankers is that prices are no longer being shaped “just” by demand cycles, of the sort they have spent decades analysing and trying to control models using the so-called Taylor rule suggest that US rates would need to rise   Banks... Non-financial companies would suffer too, given that almost $2tn corporate debt must be refinanced in the next two years.  An...

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  A sell-off in global bond markets has pushed borrowing costs to their highest levels in a decade or more. That means potentially heavy losses for banks, insurers, pension funds and asset managers that own trillions of dollars of sovereign and corporate debt after loading up in recent years. Paper losses on the most opaque part of US banks’ bond portfolios are now close to $400bn Most banks, and in particular the largest ones, will not have to sell and so will never realise those losses. But  FT 5 October 2023 https://www.ft.com/content/144c541a-1109-40c9-b74a-7d176ba90fc6 The rout in Treasuries  has sent shockwaves through the global bond market in recent months as investors position for borrowing costs to stay higher for longer. Bloomberg 5 October 2023 https://www.bloomberg.com/news/articles/2023-10-05/only-a-stocks-crash-can-rescue-bonds-for-barclays-as-fed-won-t Five lessons from today’s bond market turmoil There are echoes of 2007: an interconnected system is highl...

This week, I was moderating a session at the UN General Assembly in New York... As an idealistic teenager, I had been infatuated with its lofty mission of promoting international collaboration and peace. Witnessing it at closer quarters as an adult, my reverence turned to cynicism, if not despair.  Yet, just when I feel tempted to succumb to cynicism entirely, something about the place and its organisation manages to reawaken my former teenage optimism. It happened when I walked along the green carpet leading into the General Assembly hall, and saw the multicoloured whirl of nearly 200 flags festooning the entrance. No, nothing tangible has happened yet to actually unlock more money for poor nations. In that sense, the exchange was just the kind of ritualistic summit-speak that the climate activist Greta Thunberg has described as “blah, blah, blah”. Gillian Tett 20 September 2023 https://www.ft.com/content/6abde0dc-7c5d-4ca4-90a9-e03b981ca401

 Unease is rising — as are the extreme positions taken by hedge fund This week the doughty Financial Stability Board has also raised some red flags. In a new report issued before the G20 meeting  The Financial Stability Implications of Leverage in Non-Bank Financial Intermediation https://www.fsb.org/wp-content/uploads/P060923-2.pdf “presents a financial stability vulnerability because the trade is generally highly leveraged and is exposed to both changes in futures margins and changes in repo spreads”. In plain English: if US rates swing sharply, prepare for jolts. Gillian Tett FT 7 September 2023 https://www.ft.com/content/e57db62f-8784-411f-9328-b9a6d7b8a8c0 FSB warns of risks posed by hedge funds’ ‘hidden leverage’ https://englundmacro.blogspot.com/2023/09/fsb-warns-of-risks-posed-by-hedge-funds.html

 Last month Sam Altman, the (in)famous founder of OpenAI, posted a picture on social media of an elegant A-frame wooden building in a verdant tropical setting.  It looks like a billionaire’s weekend pad. However, what the image actually depicts is the putative design of a small modular (nuclear) reactor invented by Oklo, a company that Altman has chaired since 2015.  On Thursday the United States Air Force announced plans to use Oklo’s reactor for the Eielson Air Force Base in Alaska — seemingly the first potential use of commercial SMRs by the Federal Government on American soil.  A rival company called TerraPower, backed by Bill Gates, is also developing reactors. So is NuScale, which listed via a Spac last year and recently received $275mn in funding from variety of governments for a Romanian project. Industrial giants such as Britain’s Rolls-Royce are jumping into the action while GE Hitachi is building an SMR plant in Canada.   But since SMRs are small...

Why did Hillary Clinton lose the 2016 presidential election to Donald Trump?  Writing in The Atlantic this week, Clinton... She argues that it was this loneliness, exacerbated by social media, that helped extremist views to spread in 2016 Clinton’s 3,500-word essay will undoubtedly spark plenty of snarky comments.  Gillian Tett Financial Times 9 August 2023 Could loneliness explain why Trump won? | Financial Times (ft.com)

When Silicon Valley Bank collapsed this spring, it revealed ugly truths about the private sector financial world — including that investors and regulators had become “blindsided by risks which ex post seemed too obvious to be missed”, as a hard-hitting new book from NYU Stern business school notes. Most notably, many financiers ignored rising interest rates — even though these were clearly visible — while taking crazy bets that later blew up.  ... the role of government agencies such as the Federal Home Loan Bank system and the role of collateral in the financial system. Both deserve far more debate if we want to avoid another SVB-type shock. The FHLB  was created in 1932 ... its mandate was expanded in the 1980s to cover mainstream commercial banks as well. And during the 2008 financial crisis, the FHLB furtively rescued many institutions by supplying loans when commercial markets closed due to the implosion of the subprime mortgage sector.  ... between September 20...

The San Francisco Federal Reserve recently analysed the impact of the US government’s $5tn-odd Covid-19 stimulus and concluded that American households had an eye-watering $2.1tn excess savings in 2021, due to that largesse. Consumers have subsequently run down this cushion. But the research notes that “there is still a large stock of aggregate excess savings in the economy [of] some $500bn . . . households on average, including those at the lower end of the distribution, continue to have considerably more liquid funds at their disposal compared with the pre-pandemic period.” Moreover, it predicts that “these excess savings could continue to support consumer spending at least into the fourth quarter of 2023.”  Why? One potential explanation is that the data is wrong or, more accurately, incomplete.  Research by economists at the Washington Fed that uses a different methodology, implies that excess savings might already be depleted. it is possible that consumers are extrapolati...

 Admittedly, some 56 per cent of the voters surveyed say they disapprove of Trump, but a similar proportion also disapprove of President Joe Biden. This led Peter Turchin to the conclusion that there is a fundamental pattern: an elite grabs power, then over time tries to protect that by grabbing more and more resources. That inevitably ends up leaving poor people even poorer (“popular immiseration”) and spawning an “over-production of the elite” — too many elites chasing too few roles — which, in turn, leads to extreme frustration, anxiety and in-fighting. The result is usually a social explosion and political disintegration, with Turchin’s models suggesting that such structural shifts typically occur about every 100 years in complex societies His new book, The End Times: Elites, Counter-Elites and the Path of Political Disintegration In plain English, this suggests that a figure such as Trump is a symptom, rather than the cause of the US’s turmoil. Turchin is not the only contempo...

A decade of extremely low rates has created distortions across the financial world and it could take a long time for these to unwind. That attrition problem goes far beyond the banks. The issue at stake is captured in some charts buried in the Federal Reserve’s recently released financial stability report.  These show that insurance groups held about $2.25tn of assets deemed to be risky and/or illiquid, including commercial real estate or corporate loans, at the end of 2021 (apparently the latest available data).  In gross terms, that is almost double the level they held in 2008, and represents about a third of their assets. The mighty, quasi-state entity that is the FHLB which is propping up many parts of US finance today rather than the regional banks.  Once again, I am not suggesting that this is a reason for panic Gillian Tett FT 11 May 2023 https://www.ft.com/content/1aa41d97-f8a7-46d5-be71-6ec0a0cc208f?emailId=07888ccb-2152-4c01-b0e6-aac70a1c5989&segmentId=7d033...

 since there are bigger structural shifts in the global economy. “Some of what’s making the neutral rate be higher may be temporary, but there’s no reason to think that all of it is temporary,” Summers argued. Macroeconomic shifts aside, there is another, often-overlooked cultural issue as well: the propensity for people to define “normality” as what they grew up with. Most notably, financiers under the age of 50 built their careers in a world of ultra-low rates and inflation. They therefore tend to view this as “normal” Gillian Tett FT 9 March 2023 https://www.ft.com/content/481bbc43-550a-4b98-afee-0a87eb3c7513 Hamngatan 1966

 Investors and institutions have been dangerously overleveraged and “thinking that rates will stay low forever”. Four places that investors (and regulators) should now watch closely. One is the state of open-ended investment funds, or vehicles that let investors redeem assets at will. This sector has swelled to contain $41tn of assets. A second issue is government bonds. Liquidity increasingly tends to evaporate at moments of stress.   A third issue is housing. Prices kept rising earlier this year, even after monetary tightening started. A stunning surge in the 30-year fixed US mortgage rate in America to 6.75 per cent, its highest rate since 2006 A fourth issue is private capital. Investors should brace themselves for more surprises, unless, of course, next week’s IMF meeting in Washington reveals that central banks are about to perform (yet another) U-turn. Gillian Tett FT 6 October 2022 https://www.ft.com/content/5fb85f38-dcdc-4550-a164-2a3fdd7ae612

 Investors should take note of some intriguing research floating around the edge of the Jackson Hole meeting about the importance of storytelling in monetary policy.  After the 2008 financial crisis, Robert Shiller, the Nobel Prize-winning economist, urged his colleagues to study how “narratives” shape sentiment and thus economic trends. And one encouraging post-crisis development in economics is that a swelling number of young behavioural finance economists have heeded Shiller’s call.  So if I were his speechwriter, I would  argue that inflation will fall when rates go up, and promise to keep raising those rates until price growth is at a sensible level.  That will not be politically popular ahead of a crucial midterm election. But it is at least a crystal clear message — or it would be if the Fed actually does it. Gillian Tett FT 25 August 2022 https://www.ft.com/content/756f605a-7ae3-469a-8a68-78ee41ea8b4f Gillian Tett is chair of the editorial board and edit...

 During most of the past ten years, this debt question has often been ignored by pundits Total global debt was 352 per cent of gross domestic product in the first quarter of this year, with private sector debt accounting for two-thirds of this, and public sector debt one-third. Total global debt today, relative to GDP, is more than double its 2006 level — and triple the 2000 ratio (when it was under 100 per cent). So what happens now if rates increase? No one knows. But the really fascinating question is the bigger one: can a thrice-leveraged system ever really deleverage, without suffering a full-blown crisis (that is, mass default)? Gillian Tett 14 July 2022 https://www.ft.com/content/98a1e4c3-1a4c-4fe1-b55e-56a669a54b81

 For me, his real gem is “Life among the Econ”, a comic essay written with wry affection, but serious intent, 50 years ago. https://www.ufjf.br/econs/files/2010/05/life-econ-crop.pdf As I noted in a column last year, Leijonhufvud wrote it soon after joining UCLA https://www.ft.com/content/ecf08d1b-88e3-4c0e-ae3d-8242f52db278 The essential message of “Life among the Econ”, that economists can sometimes be prone to tunnel vision and abstraction, is still relevant.  These failings were one reason why so few foresaw that 2008 crisis. In the years leading up to it, most economists had little contact with either the weeds of the financial system (where credit bubbles were developing) or subprime mortgage borrowers (where consumers were not behaving as economists’ models predicted). Gillian Tett 11 May 2022 https://www.ft.com/content/b409c254-79e6-41f4-91ce-dbeaebda016e Five years before the financial meltdown of 2008, Robert Lucas famously declared that “the central problem of depre...