Maybe it’s not too late to rotate. But where to? Should the bubbles keep bursting, will there be an old fashioned stampede into safe&sound? A goldrush after all? An unprecedented re-emergence of cryptomania? Or a run for cover on land in a final submission to real-existing rentier-capitalism?
Whatever your preference, best order some wine with it: According to the investment firm Premier Cru, it would have provided a phenomenal return over the past 60 years: “Our £100 could today be worth as much as £478,000 tax free.”
Mind you, here is international economist Adam Posen telling us why we shouldn’t really care about asset prices:
bbc.co.uk 20-5-2022 Faisal Islam: “How concerned should we be about asset prices in the world now?”
Not much? If only.
Far from a detached casino, the asset- and money-markets’ valuations sit at the top of the hierarchy in the core capitalisation process and are bound to affect all below.
Just follow the money…
markets now & then – updates
> asset prices, banking, capitalisation, crash, crisis, FED, finance, inflation, monetary, money markets, SVB, US , valuation
independent.co.uk 20-8-2023 Trader who predicted 2008 financial crisis bets $1.6bn on stock market crash by end of 2023 – Michael Burry, played by Christian Bale in the movie ‘The Big Short’, is putting his money on another financial disaster – by William Mata
An investor who was featured in the film The Big Short after he correctly bet on the housing market collapse in 2008 has now predicted that a Wall Street crash will take place by the end of this year. Michael Burry, played by Christian Bale in the 2015 film directed by Adam McKay, is reported to have bet more than $1.6bn (£1.25bn) on the event happening in 2023. Security Exchange Commission filings released on Monday show that he has taken out negative options on the S&P 500 and the Nasdaq 100 – both of which are representative of the US economy at large. Mr Burry bought $866m (£679m) in put options against a fund that tracks the S&P 500, and $739m (£580m) in put options against a fund that tracks the Nasdaq 100. His bet comes as the S&P 500 has risen 16 per cent and the Nasdaq 100 38 per cent already this year.
Mr Burry became famous for his market movements in the mid-2000s, when he bet against the housing market during events that led to the worldwide recession. It seems that he does not always get it right, however. In January, he tweeted the word “Sell” to his 1.4 million followers, but then in March he wrote “I was wrong to say sell”….
businessinsider.com 12-5-2023 A 31-year market vet who called the current bear market warns an impending credit crunch and recession will sink stocks by 45% as valuations remain higher than dot-com bubble levels – by William Edwards May
investing.com 12-5-2023 Jerome Powell Hinted at Upcoming Market Crash – By FBS (Kirill Beliaev)
… In this article, we explore why the Fed’s statement is a bearish signal for risky assets and look at how the upcoming rise in US government debt will affect financial markets. …
Immediately after the government approves the raising of the national debt ceiling, the Fed will start to provide the US budget with liquidity, but not for the whole $1.5 trillion. The US Treasury will issue bonds for most of that amount to obtain liquidity. This will lead liquidity in the financial markets to decrease. The problems will appear with a lag of 1-2 months, so in June or July the market may fall due to low liquidity. These difficulties will pile on top of the ongoing problems with the banks…
…Based on the above, here’s what we might see two conclusions can be drawn: The US Treasury will borrow money in the markets. Thus, theoretically, bond yields may still rise. Reduced market liquidity could lead to a credit crunch, which, together with other factors, could lead to a drop in US indices. Technical Outlook: The main beneficiary of economic uncertainty is gold, so no wonder, it jumped to 2050. If the price breaks through 2080 on the third attempt, it will move to 2300.
unherd.com 9-5-2023 Is a 2008-style credit crisis imminent? Banks are positioning themselves for another recession – BY PHILIP PILKINGTON
…We are currently somewhere near the top of the tightening part of the cycle. The wave of defaults has yet to take place, but there is every reason to think that the dam could break at any moment. Borrowers are starting to sense this and demand for loans is drying up. In the market for loans, fewer people are buying and fewer people are selling. Meanwhile, every time a bank blows its lid other institutions get increasingly nervous.
When does it all come crashing down? On this, the markets are divided. Many institutions are now positioning themselves for a recession, assuming as they do that when banks blow up one is just around the corner. Hedge funds, though, are betting against such an outcome. They think that the economy remains too strong, despite the tightening credit standards. Yet neither banks nor hedge funds have any illusions about what the result of all this is.
The big question is whether the economy will recover from this recession. After 2008-09, stagnation set in, with central banks having to print large quantities of money to try to lift the economy from its slumber. This time around, we are going into a recession with serious structural inflationary problems, not to mention a nascent trade war between the world’s two largest economies (China and the United States). If the post-2008 recovery was sluggish, the comeback from the approaching recession might be even more challenging.
ft.com 9-4-2023 What I Have learnt from three banking crises – by Gilian Tett
Central banks have chosen ‘class war over financial stability’ by Ann Pettifor
scroll down for original article
finance.yahoo.com – fortune.com 21-3-2023 An economist who correctly predicted the Great Financial Crisis says the world’s central banks have chosen ‘class war over financial stability’ – by Tristan Bove
Marshaled by the U.S. Federal Reserve, central banks around the world have had a unifying philosophy over the past year: Bring down inflation no matter the cost, even if it means risking pain for people and businesses. But that approach has been questioned more than ever this month in the wake of several high-profile banking collapses in the U.S. and Europe. Now a British economist who predicted the 2008 global financial crash has escalated the issue, saying central banks prefer “class war over financial stability.”
The Fed and other central banks have underlined tight labor markets and high wages as key underlying causes behind inflation. But while loosening job markets might help cool down the economy, it also means layoffs, joblessness, and a potential recession—an unacceptable and risky trade-off for some critics.
“[C]ivil servants that head up central banks seem willing to sacrifice private banks and global financial stability in their rush to raise rates, crush demand, discipline workers and shrink the nation’s income,” Ann Pettifor, a British economist and frequent economic adviser who predicted the 2008 global financial crash with a prescient 2006 book on mounting debt worldwide, wrote in her Substack newsletter Sunday.
“In other words, their effective preference is for class war over financial stability.”
“Hard to face up to what central bankers are doing”
Silicon Valley Bank has taken its fair share of criticism for its collapse earlier this month, with many slamming its management, but the Fed also had a role to play in its downfall.
The Fed has been accused of blocking any phrasing about regulatory blunders that may have led to the bank’s collapse when the government announced SVB’s rescue. SVB’s failure was also tied to its assets losing value over the past year as the Fed abruptly shifted away from a near-zero-interest rate environment. That made SVB particularly vulnerable to a liquidity crisis, and other banks are in a similar position.
“The fact is I found it hard to face up to what central bankers are doing, not just by raising rates, suppressing demand, and lowering wages,” Pettifor wrote. “Through lack of analysis, regulation, oversight and foresight—central bankers have shown this last week they were prepared to use high rates to risk and even precipitate bank failures and global financial instability.”
She also criticized the European Central Bank for sticking to large rate hikes last week despite the recent bank collapses in the U.S. Credit Suisse failed just days later, and was bought by USB in an emergency deal brokered by regulators.
Pettifor went on to reference an interview between former Treasury Secretary Larry Summers and comedian and political commentator Jon Stewart aired last week. Summers insisted that raising rates and tackling inflation at all costs was the right way forward, while Stewart challenged him on the outsized role corporate profits have played in fueling inflation, which has received comparably little attention from the Fed.
Pain to workers and lower-income groups has been depicted as a necessary evil in the battle to reduce inflation by Fed Chair Jerome Powell and other prominent economists, like Summers. But the approach of targeting the labor market to reduce inflation has also been widely criticized around the world. The Bank of England’s governor Andrew Bailey was slammed last year for asking British businesses to practice “restraint” in pay raise negotiations. More recently in the U.S., Powell’s method has been blasted for causing financial instability with this month’s banking crisis and ultimately placing the burden of reducing inflation on workers’ shoulders.
Pettifor isn’t the only voice critical of central banks’ policies. Political figures in the U.S., mainly on the progressive left including Sens. Elizabeth Warren and Bernie Sanders, have also criticized Powell and the Fed for risking driving the economy into a recession and casting millions into unemployment. Warren has been at the forefront of attacks, saying Sunday that Powell had “failed” at his job and should no longer be chair. She has long been critical of Powell for the risks high interest rates pose to the labor market, warning earlier this month that the Fed could put as many as 2 million Americans out of work by the end of its current tightening cycle.
Raising interest rate hikes and slowing down the economy tends to hit employees the hardest, especially low-wage ones, by triggering layoffs and slowing down wage growth. “Higher interest rates will harm millions of workers who will be involuntarily drafted into the inflation fight by losing jobs or long-overdue pay raises,” Robert Reich, former U.S. Labor Secretary, wrote in an op-ed for The Guardian last year shortly before the Fed began its tightening cycle.
To be sure, inflation has been a driving concern for Americans since last year, often more so than any other issue. Last month, 13% of Americans cited inflation as their biggest current concern, while only 1% mentioned wage issues, according to Gallup.
Inflation has been a heavy burden for Americans of all income levels since prices began creeping up in 2021. It’s been particularly painful for low and middle-income Americans, who have had to dip deep into their savings to cope with soaring food, energy, and housing prices. Inflation has been hard for high earners too, as more than half of high-income Americans are now living paycheck-to-paycheck.
But the Fed’s focus on inflation—and especially on labor market tightness which Wharton professor Jeremy Siegel earlier this month called “monomaniacal”—may be ignoring some important points behind rising prices. A 2022 study from the left-leaning Economic Policy Institute found that over half of price increases for goods and services could be attributed to larger profit margins among corporations, while only 8% of inflation was tied to higher labor costs.
Siegel told CNBC this month that since the beginning of the COVID-19 pandemic, worker wages have been rising more slowly than inflation and it was “hard to argue” that labor costs were the main contributor to inflation.
On the Fed’s larger inflation vision, some economists including Mohamed El-Erian have argued that its 2% goal is outdated and reaching it would lead to severe economic harm, while a “higher stable inflation rate” around 3% to 4% might be more appropriate.
It is unclear if the recent banking failures and pleadings from the left have swayed Powell from his commitment to bringing down inflation no matter the cost, although Fed officials will provide clarity on their direction when they meet Wednesday to discuss the size of the next interest rate hike.
annpettifor.sub.com 18-3-2023 Banks as Collateral Damage in a Class War – Central Bank obsession with holding down wages has consequences for fin stability – by Ann Pettifor/gg – annpettifor.sub/system change
So much has happened this past week… and there’s more to come. The following post is a reflection on recent events. I am aware that much of what has gone on is expressed in arcane and often inaccessible language. If readers have specific questions about the current financial turmoil they want me to address, please post your questions in the comments. And don’t be shy. You probably know and understand more than many presiding over the current upheaval…
Tightening pain – After tightening Bank of England monetary policy and raising rates in February, 2022, the £575,000-a-year BoE governor, Andrew Bailey, was asked whether he wanted to inflict more pain on workers? His answer was direct:
“Broadly, yes – in the sense of saying: we do need to see a moderation of wage rises. That’s painful – I don’t want to in any sense sugar that message, it is painful.”
Earlier in December, 2021 the TUC outlined the context in which Mr. Bailey argued for futher cuts in the real wages of workers. British workers were already enduring
….the longest period of pay stagnation since the Napoleonic wars. Real wages for millions are less than they were before the bankers’ crisis in 2008.
While gripped by the financial crisis of these last ten days, I’ve been slow to write about the predicted and deplorable outcome of recent decisions by central bankers – so called ‘guardians of the nation’s finances’.
The fact is I found it hard to face up to what central bankers are doing, not just by raising rates, suppressing demand, and lowering wages, as Jon Stewart so emphatically explained in his interview with Larry Summers.
But as importantly, through lack of analysis, regulation, oversight and foresight – central bankers have shown this last week they were prepared to use high rates to risk and even precipitate bank failures and global financial instability. They have done so, and continue to do so by deliberately tightening monetary policy into heavily indebted economies, with falling real incomes. Economies that have still not fully recovered from both the GFC and the pandemic.
I found it hard to get my head around that reality. Namely that together with their Boards and staff, the civil servants that head up central banks seem willing to sacrifice private banks and global financial stability in their rush to raise rates, crush demand, discipline workers and shrink the nation’s income .
In other words, their effective preference is for class war over financial stability. The proof for what might seem an outrageous accusation is in the ECB’s recent decision-making.
On Wednesday last week, and at the height of US financial instability, the European Central Bank (ECB) Board set out to prove my point. Ignoring the bank failures caused by the Fed’s too-rapid rate rises, and well aware that a crisis in one part of the system ricochets across the world – the ECB defiantly lifted all three of the their key rates by a whopping 50 bps.
Were they blind to the risks higher rates posed to European banks like Credit Suisse? Just as they are careless of the impact on employment and workers wages? Or did ideology which elevates inflation above all other indicators trump common sense? Answers on a postcard please.
Why are banks and the finanical system “collateral damage”? – Like the failed Silicon Valley Bank (SVB), US and European banks and financial institutions have long gorged on government and corporate bonds issued at very low rates of interest. Investors (think Silicon Valley billionaires, asset managers, hedge funds, private equity etc.,) acquired these assets and used them as sound collateral to leverage higher borrowing. Private debt ballooned as a result.
Central bankers did little to discourage such borrowing by toughening up on regulation and supervision. Instead, after more than a decade of ‘easy money’, increased borrowing and rising debts, they tightened the monetary policy noose.
As is well understood, when central banks raise interest rates, then new government and corporate bonds are issued at higher rates. These higher rates increase ‘returns’ (the yield) on newly issued bonds. The ‘returns’ on these bonds are even more valuable if fewer new bonds enter the market, creating a scarcity of profitable rents. The new higher rated bonds are then more valuable to investors than the multitude of bonds issued under the low rate regime. As a result ‘older’ bonds are sold off as wise investors make a dash for the higher ‘returns’ on scarcer, newer bonds.
As a consequence of this shift in value, the prices of low interest bonds fall.
Now this does not matter if bonds are held to maturity, and there is no pressure to sell. With time future rates might fall, and bond prices rise. But if bonds have been used as collateral – then lenders will notice the borrower’s collateral has fallen in value and will demand more collateral to shore up (often huge) outstanding debts. There will then be a scramble to sell, or to mobilise more capital to satisfy creditors.
The Silicon Valley Bank ignored changes to the value of assets (bonds) triggered by higher rates, rising with greater rapidity than before. (So did the Federal Reserve, for that matter). Nor did they seem to understand the financial implications of falling asset values held by the bank and its indebted investors.
Until that is, a group of Silicon Valley ‘founders’ – led by Peter Thiel – noticed the risks, used their WhatsApp groups to spread panic amongst a select group of Venture Capitalists, who then instantly transferred money out of the bank, and triggered a ‘digital run’ on SVP. The first ‘frictionless’ run on a bank…No need to queue outside SVP!
By the way, The Financial Times has the story.
Peter Thiel said he had $50mn in Silicon Valley Bank when it went under, even after his venture fund warned portfolio companies that the tech-focused lender was at risk. Peter P @PPreungesheim
Cool eh? After all, what’s the likely loss of $50 million amongst friends?
The big question central bankers must address is this: why did speculators and venture capitalists notice these imbalances while they and financial regulators did not?
The answer may be down to the grip of an economic ideology espoused by tenured Harvard Professors like Larry Summers and Ken Rogoff. Both appear to believe that inflation exceeds in its power all other threats. And that inflation is largely caused by rising wages (even as real wages are falling) – or even the expectation that wages might rise. That to suppress wages and therefore inflation, central bankers are required to continue hiking aggressively even if this does depress demand, raise unemployment and slash wages further.
I disagree and have argued elsewhere that today’s inflation is caused by commodity market speculation, not wages. And if workers demand higher wages to deal with the inflationary impact of higher energy and other commodity prices – that is a consequence, not a cause of commodity price inflation – that regulators and central bankers refuse to manage or regulate. Instead commodity prices are left to the “invisible hand” of global markets awash with capital (thanks in part to QE etc.)
Larry Summers by contrast, in his revealing car-crash interview with Jon Stewart, explained in highly ideological terms that the “sickness” or “disease’ that is inflation can only be cured by ratcheting up what he called the “drug” of high rates.
Their bias may be the result of defending the interests (and debts) of creditors above those of borrowers, when there are more debtors than creditors. They do so because inflation erodes the value of debt. In other words inflation allows borrowers to pay a loan back in money worth less (i.e. money that purchases less) than that originally borrowed.
Hence the fetish with inflation – and the concerns of a minority of creditors or lenders.
It does not occur to orthodox economists and their friends in creditor institutions that to use high rates to slash the incomes of debtors may lead to defaults that ultimately hurt – you guessed it – creditors.
Even after the consequential bank failures of this last week, Ken Rogoff used a Financial Times column to bang the drum of low inflation and class war. He urged central bankers to keep on hiking, even if inflation falls. At the same time he conceded that
“If nothing else, the optics of once again bailing out the financial sector while tightening the screws on Main Street are not good. Yet, like the ECB, the Fed cannot lightly dismiss persistent core inflation over 5 per cent.”
The implication is that central bankers – taxpayer-funded civil servants after all – should dismiss real wage deflation of 5 per cent or more – and the economic, social and political consequences of higher rates, tighter monetary policy, rising unemployment and financial instability.
Credit Suisse – As I write this a ‘Too Big To Fail’ bank is being rescued from bankruptcy by both the Swiss state and the bank’s private competitors. Credit Suisse HQ is far from Santa Monica, California, USA, where the Silicon Valley Bank – (one of the Best Banks in America, according to Forbes) has its HQ.
These geographical facts remind us that The International Financial System is global. A crisis in one corner of the international financial forest can lead to wildfires thousands of miles away.
That is why we must change the System.
fortune.com 20-3-2023 The Fed has to choose between generational inflation or the first banking crisis since 2008– by Alexander Kurov
The Federal Reserve faces a pivotal decision on March 22, 2023: whether to continue its aggressive fight against inflation or put it on hold.
Making another big interest rate hike would risk exacerbating the global banking turmoil sparked by Silicon Valley Bank’s failure on March 10. Raising rates too little, or not at all as some are calling for, could not only lead to a resurgence in inflation, but it could cause investors to worry that the Fed believes the situation is even worse than they thought – resulting in more panic.
What’s a central banker to do? As a finance scholar, I have studied the close link between Fed policy and financial markets. Let me just say I would not want to be a Fed policymaker right now.
Break it, you bought it – When the Fed starts hiking rates, it typically keeps at it until something breaks.
The U.S. central bank began its rate-hiking campaign early last year as inflation began to surge. After initially mistakenly calling inflation “transitory,” the Fed kicked into high gear and raised rates eight times from just 0.25% in early 2022 to 4.75% in February 2023. This is the fastest pace of rate increases since the early 1980s – and the Fed is not done yet.
Consumer prices were up 6% in February from a year earlier. While that’s down from a peak annual rate of 9% in June 2022, it’s still significantly above the Fed’s 2% inflation target.
But then something broke. Seemingly out of nowhere, Silicon Valley Bank, followed by Signature Bank, collapsed virtually overnight. They had over US$300 billion in assets between them and became the second- and third-largest banks to fail in U.S. history.
Panic quickly spread to other regional lenders, such as First Republic, and upset markets globally, raising the prospect of even bigger and more widespread bank failures. Even a $30 billion rescue of First Republic by its much larger peers, including JPMorgan Chase and Bank of America, failed to stem the growing unease.
If the Fed lifts interest rates more than markets expect – currently a 0.25 percentage point increase – it could prompt further anxiety. My research shows that interest rate changes have a much bigger effect on the stock market in bear markets – when there’s a prolonged decline in stock prices, as the U.S. is experiencing now – than in good times.
Making the SVB problem worse – What’s more, the Fed could make the problem that led to Silicon Valley Bank’s troubles even worse for other banks. That’s because the Fed is at least indirectly responsible for what happened.
Banks finance themselves mainly by taking in deposits. They then use those essentially short-term deposits to lend or make investments for longer terms at higher rates. But investing short-term deposits in longer-term securities – even ultra-safe U.S. Treasurys – creates what is known as interest rate risk.
That is, when interest rates go up, as they did throughout 2022, the values of existing bonds drop. SVB was forced to sell $21 billion worth of securities that lost value because of the Fed’s rate hikes at a loss of $1.8 billion, sparking its crisis. When SVB’s depositors got the wind of it and tried to withdraw $42 billion on March 9 alone – a classic bank run – it was over. The bank simply couldn’t meet the demands.
But the entire banking sector is sitting on hundreds of billions of dollars’ worth of unrealized losses – $620 billion as of Dec. 31, 2022. And if rates continue to go up, the value of these bonds will keep going down, which fundamentally weakens banks’ financial situation.
Risks of slowing down – While that may suggest it’s a no-brainer to put the rate hikes on hold, it’s not so simple.
Inflation has been a major problem plaguing the U.S. economy since 2021 as prices for homes, cars, food, energy and so much else jump for consumers. The last time consumer prices soared this much, in the early 1980s, the Fed had to raise rates so high that it sent the U.S. economy into recession – twice.
High inflation quickly cuts into how much stuff your money can buy. It also makes saving money more difficult because it eats at the value of your savings. When high inflation sticks around for a long time, it gets entrenched in expectations, making it very hard to control.
This is why the Fed jacked up rates so fast. And it’s unlikely it’s done enough to bring rates down to its 2% target, so a pause in lifting rates would mean inflation may stay higher for longer.
Moreover, stepping back from its one-year-old inflation campaign may send the wrong signal to investors. If central bankers show they are really concerned about a possible banking crisis, the market may think the Fed knows the financial system is in serious trouble and things are more dire than previously thought.
So what’s a Fed to do – At the very least, the complex global financial system is showing some cracks.
Three U.S. banks collapsed in a matter of days. Credit Suisse, a 166-year-old storied Swiss lender, was teetering on the edge until the government orchestrated a bargain sale to rival USB. A $30 billion rescue of regional U.S. lender First Republic was unable to arrest the drop in its shares. U.S. banks are requesting loans from the Fed like it’s 2008, when the financial system all but collapsed. And liquidity in the Treasury market – basically the blood that keeps financial markets pumping – is drying up.
Before Silicon Valley Bank’s collapse, interest rate futures were putting the odds of an increase in rates – either 0.25 or 0.5 percentage point – on March 22 at 100%. The odds of no increase at all have shot up to as high as 45% on March 15 before falling to 30% early on March 20, with the balance of probability on a 0.25 percentage point hike.
Increasing rates at a moment like this would mean putting more pressure on a structure that’s already under a lot of stress. And if things take a turn for the worse, the Fed would likely have to do a quick U-turn, which would seriously damage the Fed’s credibility and ability to do its job.
Fed officials are right to worry about fighting inflation, but they also don’t want to light the fuse of a financial crisis, which could send the U.S. into a recession. And I doubt it would be a mild one, like the kind economists have been worried the Fed’s inflation fight could cause. Recessions sparked by financial crises tend to be deep and long – putting many millions out of work.
What would normally be a routine Fed meeting is shaping up to be a high-wire balancing act.
medium.com/mpi 19-3-2023 Volcker 2.0: Interest Rate Volatility and the Powell Put – by Eric Tymoigne
…”…The regional and international financial instability that we have experienced recently is a stark reminder of the limits of an aggressive tightening of monetary policy. If balance sheets and debt services are sensitive to changes in interest rates, a rapid increase in the policy rate runs into a financial-stability barrier.
This point has been made many times by economists who reject the validity of the “Schwartz Hypothesis”, which states that by focusing on price stability a central bank also promotes financial stability and “will do more for financial stability than reforming deposit insurance or reregulating” (Schwartz 1988, 55). Contrary to such a hypothesis, many economists have emphasized the destabilizing effect of an aggressive monetary policy. John Maynard Keynes’s square rule, what is now known as the “liquidity trap”, noted the duration risk involved in aggressive monetary policy. Hyman P. Minsky from the 1960s argued that active monetary policy must be conditional on the state of fragility of the financial system (e.g., Minsky 1964, 1972, 1975). Nicholas Kaldor concluded that “there must clearly be limits to the freedom of the central bank to use the interest weapon if the solvency and viability of financial institutions is to be preserved” (Kaldor 1982, 13). The point was further emphasized and developed by post-Keynesians and generated a vigorous debate among proponents of the Inflation Targeting framework (Tymoigne 2009a, 2009b)…”… read on at source
economist.com 18-3-2023 For markets Silicon Valley Bank’s demise signals a painful new phase – The Fed’s tightening is starting to bite
linkedin.com 15-3-2023 Banks and the butterfly effect—the global ramifications – Stephen Dover
beyondbullsandbears.com 13-3-2023 Silicon Valley Bank failure ripples through the market – Stephen Dover
…”…Silicon Valley Bank is a unique bank with a classic problem. SVB was focused on startup companies primarily in technology. Startup and venture capital firms held large deposits at SVB that were not guaranteed by the Federal Deposit Insurance Corporation (FDIC). SVB served half of all venture-backed companies in the United States.1 SVB failed because of a mismatch between its short-term depositors who were withdrawing assets and its longer-term assets, mostly US Treasures, that had dropped in value as interest rates increased. This bank failed because it did not have a diversified client base and lacked strong risk management, which ultimately ended in a bank run…”…
bloomberg.com/ 13-3-2023 Nomura Predicts Rate Cut and QT Halt at Upcoming Fed Meeting – Debut of new lending facility is also possible, Nomura says – Measures so far seem insufficient, judging by market reaction – by Edward Bolingbroke
ft.com 10-3-2023 Hard landing or harder one? The Fed may need to choose The Fed’s only realistic options may be a hard landing and a harder landing. It may be time for it to choose – by Raghuram Rajan
>global economy, growth
elpais.com 12-3-2023 The three wildest years in modern economic history – Since 2020, the global economy has been facing major shifts and challenges: unexpectedly high inflation, abrupt rate hikes, de-globalization and the energetic transition- by IGNACIO FARIZAL, LUÍS PELLICER
Three years ago, the world was already holding its breath in the face of the rapid advance of the virus, but there was no foreshadowing that the economy was going to turn around like a sock in a matter of hours. That activity would be artificially hibernated. And that the planet, in short, would wait for months waiting for the end of the shutdown. The possibility of the greatest recession ever experienced in peacetime did not enter anyone’s head. Nor that peace was about to explode with the first war on European soil since the Balkans. That energy and commodities would hit record highs. That value chains would be stretched to unimaginable levels. And that globalization itself, unstoppable for decades, would be called into question.
A pandemic, a war and the onset of galloping inflation are strange episodes, the kind that, however improbable, remain in the collective memory for decades. Their confluence in such a short period is even rarer. “They have been the three wildest years in modern economic history,” sums up Gian Maria Milesi-Ferretti, now at the Brookings Institution after many at the IMF. “They have been such huge shocks that even the most dormant economic variable of all, inflation, has skyrocketed.”
Far from being a normal economic cycle, what happened is something “completely anomalous,” in the words of economist Angel Ubide: first an induced coma, then an acceleration never seen before, and then a war. “These are three events that occur once every 100 years, and all three in a very short period of time”. The result: a constellation of economic shocks and policies “that make this a completely unique situation”.
“Since 9-11, the Great Recession, Brexit and the arrival of Donald Trump to power, the black swans are not so black swans anymore. But the last three years have been the height of unpredictability: we have never seen so much volatility and dispersion in all economic variables,” says Leopoldo Torralba of Arcano Research. “There are several generations of us who have never experienced a succession of chained events like this,” says Rafael Doménech, head of Economic Analysis at BBVA.
To find a comparable period, according to Joan Roses, professor at the London School of Economics (LSE), one has to go back to the years immediately after World War I and the flu pandemic of 1918: “Now there has not been a destruction of capital and a contraction of the labor force as there was then, but we are seeing something similar: there was inflation for a lot of years and international trade networks were destroyed”.
“The global financial crisis [of 2008] was even more savage and harder to control,” disagrees Olivier Blanchard of the Peterson Institute. “It is understandable that we think what is happening now is worse, but in the 20th century we have lived through very turbulent times: two world wars, a depression and another pandemic [that of 1918],” recalls Leticia Arroyo, an economic historian at the City University of New York. “This is the worst global crisis that those of us who were born after 1952, when the rationing cards ended in Spain, have suffered. But, at least until now, it has been quite bearable,” synthesizes Francisco Comín, also a historian. “There have been other savage periods, but what has happened in the last three years is certainly unprecedented,” adds Anne Krueger, former number two and former head of analysis at the World Bank.
What follows is a brief account of the three years in which the global economy hung by a very thin thread that – fortunately – never ended up breaking:
From negative interest rates to the biggest rise in half a century. José García Montalvo of Pompeu Fabra used to begin his lectures by warning that “interest rates can never be negative”. That is no longer the case. The major economies, with Europe, the US and Japan at the forefront, sank the price of money to the subsoil in 2020 and flooded the markets with liquidity to get out of the hardship. The aim was to stimulate investment and demand. “The natural interest rate had already been falling for the last 30 to 40 years. But that period of negative rates completely distorted the fundamentals of the economy,” says the professor.
The pendulum swung from one extreme to the other in the blink of an eye. The end of the confinements freed up savings that had also reached historic proportions, boosted demand, disrupted logistics and laid the foundations for an inflationary escalation that was later aggravated by the Russian invasion of Ukraine. That not only ended the policy of ultra-low rates: central banks stepped on the accelerator in the biggest hike in a long time. In the case of the ECB, the steepest in its history: if its roadmap remains unchanged, in just nine months Frankfurt will have raised them from 0% to 3.5%.
Charles Wyplosz of the Graduate Institute in Geneva believes the era of ultra-low rates will have “massive implications.” “Public debts will be harder to service and this can be dangerous. Asset prices will have to come down in a lasting way and we can anticipate a big clean-up in financial markets. Central banks have created huge amounts of liquidity, which must be withdrawn,” he says. “There has never been a smooth transition from superabundant liquidity to less abundant liquidity.”
… And yet the economy is holding up. For almost a decade, the central banks threw as much wood as they could to prevent the economic fire from burning out. Now they are looking for just the opposite: high inflation has forced them to pull out the fire extinguisher. The ECB, says its president, Christine Lagarde, “will continue the course of significant hikes at a sustained pace and keep them at sufficiently restrictive levels to ensure a timely return of inflation to its 2% target”.
Still, the economy holds on. Brussels had warned countries of a harsh winter, with energy cuts and even the possibility of rationing. But gas prices have come down and nothing of the sort has happened. “The structural parameters of the economy are moving in a different direction than a few years ago,” says García Montalvo. The private sector’s balance sheets are much healthier than in previous upheavals. “Banks have been recapitalizing since 2010, families have savings and companies are less indebted. The starting position was better and the policies that have been taken have also been better,” Ubide adds.
The euro zone closed 2022 with an increase of 3.5% after the economy stagnated in the last quarter and employment grew by 0.3%. The United States, which started rate hikes earlier, grew by 2.1% for the year as a whole, with an increase of 0.7% in the final stretch of the year. The strength of the economy has led central banks to warn of a new round of tightening. Federal Reserve Chairman Jerome Powell threatened to step on the accelerator again. In Europe, the more orthodox wing of the ECB has already threatened to take interest rates to 5%.
While acknowledging that the guardians of monetary policy were slow to react, which now raises the risk that they will have to go too far, Alejandro Werner, a former IMF executive now at Georgetown, poses a question: “Would we rather live in a country that has an inflationary problem but has recovered precovid activity levels or in one where the opposite has happened? It is clear to me that it is the former”. The problem, countered Arroyo, of the City University of New York, is that “it is not easy to control inflation: inflationary inertia cannot be cut from one day to the next”. If rates had not been raised at this pace, he projects, “we would be at 15% inflation and accelerating”.
The question is whether there is a risk that these rate hikes will end up leading to the recession so often announced. “There is, but I continue to believe that, if there is, it will be short and mild, given the strength of economic fundamentals. And letting inflation become entrenched would be much worse: in that case, rates would have to stay high for even longer, which would end up hurting the economy even more,” says Berkeley’s Barry Eichengreen.
From short-circuiting supply chains to de-globalization? “Global gridlock”. The front page of this newspaper on October 24 reflected a collective mood. The pandemic was being left behind, but a new batch of problems was arriving in the form of an unprecedented breakdown in the global value chains that give consumers access to products manufactured thousands of miles away from home. That gear had seized up: chips were in short supply, the freight for a container from Rotterdam had increased fivefold in a year. Getting a new car or a washing machine in time was becoming a pipe dream.
The war would consummate the retreat of these global chains and change the business mentality: from producing in the cheapest corner of the world to producing in the most reliable. Globalization itself, the process that has most changed the world’s economic structure in recent decades, is under discussion. “Suddenly, we have realized that bringing a ship from Shanghai to Long Beach is more uncertain than taking a train from Chihuahua to San Antonio. Before, we didn’t consider the risks of the first route; now we do, and that’s a major change,” Werner notes. We are therefore moving towards a regionalized globalization in which China’s role has also been affected. “From being the country of choice for everyone, it has become almost a pariah. Its image has clearly suffered a setback,” says Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.
“Although to a different degree than in the interwar period, there is now also a return to protectionism. And without political agreement between countries, there will be no globalization: if what happened then is repeated, globalization will collapse,” predicts the LSE’s Roses. The great lesson from then, he says, is that without international collaboration we could be facing a lost era. Eichengreen is more optimistic: “There is little evidence to support de-globalization. Rather, we are seeing a reorganization of the world economy, with shorter and more diversified supply chains. But that doesn’t mean they are being eliminated.”
“There will be temporary tensions and setbacks, and we may even see new regional trading blocs,” predicts Ugo Panizza, vice-president of CEPR, “but the world economy remains highly integrated. If globalization were to reverse, warns Diane Coyle of Cambridge, “the economic impact would be significant: that’s not to say it couldn’t happen, but it would put us in a scenario of conflict and potentially catastrophic outcomes.”
The weight of the public sector. In 2010, international institutions decided that the crisis could be cured with an overdose of austerity that weighed down European economies for years. The public response to the two consecutive blows to businesses and citizens in the wake of the pandemic and the energy crisis has been radically different. “After the financial crisis, the right policies were not implemented. It was later, with Mario Draghi’s whatever it takes, that the direction was corrected. But this time, fiscal and monetary policies have been on target,” says Bruegel researcher Gregory Claeys.
Last May, in the midst of the energy crisis, the EU was preparing to pull back after national treasuries had earmarked 1.3 trillion euros – 9% of GDP – in direct aid to stop the shock, according to the Independent Fiscal Institutions network. By then alone, more than 1,000 measures had been implemented by the capitals, taking advantage of temporary suspensions of tax and state aid rules.
This policy was accompanied by a 1.7 trillion euro bailout from the ECB, which injected liquidity in spades. The US followed suit through Joe Biden’s stimulus plans and massive debt purchases by the Federal Reserve. “That we avoided the worst-case scenario is mainly due to the effective and concerted steps taken by the monetary and fiscal authorities,” applauds Eichengreen. “In five years, when we look back, we may see the total change in the way we understand monetary and fiscal policy. The frameworks have changed.
Governments and central banks stopped acting in unison when the energy crisis erupted. With the exception of Japan, inflation led monetary authorities to begin their retreat. Washington began to reduce its balance sheet a year ago, while Frankfurt is starting to do so. On the fiscal front, stimulus remains. The EU-27 have earmarked 681 billion for measures to protect citizens and companies, according to Bruegel. Of this, 268 billion has been allocated to a single country: Germany, which has broken the deck. This spending has aroused a number of misgivings among central bankers, who believe it hampers their fight against inflation. Agencies, from the IMF to Brussels, are now beginning to tighten up and call for adjustments. But much, much more timidly than a decade ago.
A speeding up or slowing down of the energy transition? Although it had been simmering for a long time, the raw materials crisis broke out at the very moment when the Kremlin’s first shell hit Ukrainian soil: Russia is the world’s largest energy exporter. At the same time, there has been a sort of bellows effect in the ecological transition: more burning of fossil fuels – especially coal, the most polluting – in the short term, but also an unprecedented acceleration in the renewable revolution.
Carbon dioxide emissions grew by 1% last year, largely because of the switch from natural gas to coal for electricity generation in several areas of the world. Although lower than initially anticipated, the rise – “unsustainable,” according to the International Energy Agency – is bad news in the fight against climate change. In the future, however, the trajectory will be reversed: Europe’s desire for energy independence has increased the EU-27′s commitment to wind and solar power. And both the US Inflation Reduction Act and EU RepowerEU will add incentives for investment in both technologies.
“The energy transition will undoubtedly accelerate – at gunpoint, but it will accelerate,” says Francisco Blanch, head of commodities and derivatives at Bank of America. For two reasons: “Because high prices have led to a savings effort, they have taken away fat; and because a lot of progress has been made in renewables”.
Swings between the traditional and technology sectors. The last two downturns have been accompanied by tremendous volatility in the stock markets, with rapid shifts between the winners and losers of each shock. In 2020, tech giants emerged as the victors on the coattails of telecommuting, while the cryptocurrency bubble swelled. “In five months, we have lived through a five-year technological change,” Matt Brittin, president of Google in Europe, told EL PAÍS at the time. The change was not permanent. Only two years later, the tech companies have had to admit that they were too optimistic and have launched massive layoffs.
“I don’t know if that policy stimulated investment, but it did raise the risk of perpetuating zombie companies and forming bubbles,” said former US Treasury Secretary Larry Summers at a conference this week. In their place, two traditional sectors have emerged, which have benefited from the crisis with a sort of windfall profits: energy and banking, which have benefited from the rise in the cost of money.
Two unsolved puzzles: tax revenues and the labor market. Having recovered the global economic tone prior to the pandemic, tax collection has soared to unprecedented levels throughout the West. This is partly due to the emergence of underground activities -conditional aid to companies and workers; lower cash payments-; partly due to the rise in inflation. But there are still more elements missing to understand the puzzle in its full extent: it is one of the two black boxes of this crisis, on which only time will shed light.
The second is unemployment. Especially in the US, a country which, true to its idiosyncrasy, let the labor market do as it pleased and opted for paychecks -and not ERTE (Spain’s temporary furlough scheme)- to protect its citizens. In those fateful days of April 2020, when the economy was operating at 50% and the world was waiting at home for a reopening that seemed like it would never come, almost one in seven Americans – 14.7% – was unemployed, the highest since data has been available. Today, only one in 30 is out of work – 3.6% – the lowest level since May 1969.
Employment not only held up better than expected during the worst moments of the pandemic, but its recovery has been much faster than anyone could have predicted. Inertia – labor markets came into the Great Recession with minimal vacancy rates on both sides of the Atlantic – explains part of this recovery. In the US, Trump’s anti-immigration policies also offer an additional explanation. But much remains to be elucidated.
“We are still studying it,” admits BBVA’s Domenech. “If they told us three years ago that we were going to be where we are today, even with a war in Europe in between, we wouldn’t believe it. But beware, because this polycrisis is not yet completely over,” he warns. “The risk now is that, in their game of mirrors with the markets, the central banks will go too far,” warns Torralba, of Arcano.
economist.com 8-3-2023 “The housing market warns that the economy faces a tough road ahead”— ECONOMISTS AND POLITICIANS around the world are consumed with one question: is the world headed for a recession, or a relatively soft landing?
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economist.com 1-3-2023 America’s property market suggests recession is on the way – As developers find clever ways to cut mortgage rates, the Fed may fight back
…”…Nationally, home prices have fallen by just 4% since their peak in mid-2022, barely eating into their 45% surge during the pandemic, according to the s&p CoreLogic Case-Shiller index.
There is also a more inflexible part to the equation: the supply of housing. Homeowners who have locked in low rates are loth to move. There are just 1.1m existing homes on the market for resale, half the average since the late 1980s. Meanwhile, homebuilders are more prudent than they were two decades ago in the lead-up to the global financial crisis. When the covid buying mania got going, housebuilding ticked up but did not soar, since developers saw the boom as ephemeral. Then, when the market softened, they almost immediately scaled back their activity.
This is good for builders’ balance-sheets, leaving them with chunky cash positions. But it is bad news for everyone else. Investment in residential construction fell by a fifth in real terms last year. It appears set to fall further this year. Strikingly, despite the nascent rebound in demand, new starts have so far fallen. Dhaval Joshi of bca Research notes that similar-sized declines in housing investment have almost always presaged recessions in the past. Robert Dietz of the National Association of Home Builders shares this concern: “You’ve never really had a time where there have been price declines and a significant decline in residential investment, and a recession has not happened.”
This runs counter to the hope in financial markets that America can steer clear of a downturn, and counter to the hope in the property market that the worst is already behind it. Firms, economists and investors have learned to be wary of inflation head-fakes over the past two years: short-lived bouts of receding inflation that give way to a reassertion of price pressures. The housing recovery may also prove to be a head-fake, with the sector on a weaker footing than it appears and the Fed compelled to keep rates higher for longer. A lot is riding on the spring selling season.”
economist.com 18-2-2023 Investors expect the economy to avoid recession – Unfortunately, they have a terrible record of predicting soft landings
opb.org 17-2-2023 Is the economy headed for recession or a soft landing? By Stacey Vanek Smith
…”…right now, nothing is really going according to plan. The data we’re getting seem to be telling some very different stories. A lot of the most important numbers are in: jobs and unemployment data, data about prices, debt and credit, and (the big one) economic growth itself (aka Gross Domestic Product). Some of this data point squarely at a recession, some point to a “soft landing” scenario. And economists are divided over where we should be looking. “We don’t quite know what’s going on,” says Raguhram Rajan, an economist and professor of finance at the University of Chicago’s Booth School of Business. “This situation is relatively unprecedented.” At the root of this confusion: inflation. Last year, as inflation rose, the Federal Reserve took action to bring prices down by raising interest rates.
… a recent Conference Board survey of CEO’s found that they overwhelmingly expect a recession. … Justin Wolfers, an economist at the University of Michigan, says all of the recession talk he’s been hearing seems absurd to him. “You’re talking to an economist who is going be happy to tell you that I see really good things,” he says. Wolfers sees a soft landing in our country’s future: Demand for stuff might drop off a bit — enough to get companies to lower prices and bring down inflation — but not enough that they’d be losing a bunch of money and start shrinking significantly. The reason for Wolfers’ optimism? Jobs….
Another promising sign that we might achieve a soft landing comes from … latest numbers show(ing) that consumers spent at a very brisk pace in January.
…But economist Raghuram Rajan thinks recession versus soft landing might be asking the wrong question. “There may not be that much difference between a soft landing and a mild recession,” he says. What we really need to look out for, he says, is the danger of a major recession….One thing is for sure: the economy is in a strange place. Some data shows an economy thriving and some shows signs of a troubling slowdown…”…
economist.com 16-2-2023 A Hard Road – Inflation briefing
Lots of investors think inflation is under control. Not so fast – Tight labour markets suggest that prices may continue to rise faster than markets think
For the past year and a half high inflation has tormented central banks, haunted financial markets and weighed heavily on the minds—and wallets—of the public. By bringing about the sharpest tightening of monetary policy since the 1980s it shattered the previous consensus that rich-world interest rates would stay low for ever. In 2022 that created havoc in asset prices, causing everything from bitcoin to bonds to fall sharply in value. In 2023 it may yet do the same to the real economy: the average economic forecaster thinks that a recession in America is an odds-on bet. When economists write the history of the post-pandemic era, the resurgence of inflation and central banks’ battle with it will be the defining story.
But when will it come to an end? A large number of investors and analysts think the answer could be soon. Central banks, in contrast, worry that wage growth remains too high to declare victory. If the dispute is resolved in central bankers’ favour, it could cause upheaval in the markets. And either way, it raises intriguing questions about how best to predict inflation…
yahoo.com 10-2-2023 Clock Is Ticking Louder on a Stock Rally the Pros Never Believed In – by Lu Wang and Isabelle Lee
theguardian.com 2-2-2023 US pension funds are on the brink of implosion – and Wall Street is ignoring it – Private equity firms managing millions of Americans’ retirement savings may be inflating their investments – by David Sirota
cointelegraph.com 6-1-2023 Macroeconomic data points toward intensifying pain for crypto investors in 2023 – Chances of a crypto bull market in 2023 decrease as the Fed maintains a hawkish stance and threats of a recession in the U.S. economy continue to appear.
opendemocracy.net 6-1-2023 BlackRock says we’re all doomed. It’s being optimistic – The world’s largest asset manager has forecast systemic economic chaos. The reality is even worse – by James Meadway
yahoo.com 6-1-2023 ‘We can have our cake and eat it, too’: Wall Street reacts to a Goldilocks jobs report – Dylan Croll, Alexandra Semenova
…”…A lower unemployment rate and weaker average hourly earnings growth is certainly going to get equity market bulls’ attention. Indeed, expectations for a soft landing in the economy have likely been boosted in light of today’s jobs report. Yet, with the unemployment rate back to the historic low of 3.5%, how realistic is it to expect wage growth to move meaningfully lower? The Fed will likely be skeptical….”…
ft.com 31-12-2022 A new era: the end of cheap money – Higher interest rates will bring casualties but also opportunity
ft.com 31-12-2022 Asset managers, please spare us your polyexcuses – by Stuart Kirk
marketwatch.com 22-12-2022 Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different? – By Joseph AdinolfiFollow
…”…Bulls and bears: wildly different outlooks – A look outside of major investment banks shows bulls and bears with dramatically different visions of how they expect next year to play out. Tom Lee, head of research at Fundstrat Global Advisors, sees the S&P 500 advancing to 4,750 next year based on his expectation that inflation will continue to recede. Lee has burnished his reputation as a stock-market bull, standing by his calls for stocks to continue to climb in frequent appearances on business television networks, like CNBC.
In a recent elaboration of his 2023 outlook, Lee noted that instances where U.S. stocks fall for two consecutive years have been rare since World War II. What’s more, double-digit pullbacks, which look likely this year, often have been followed by particularly torrid rebounds, as the historical data show. The S&P 500 has advanced 13.5%, on average, in the years following a pullback, according to Lee’s analysis of historical data going back to 1946.
On the other hand, stock-market bears like Chris Senyek, chief investment strategist at Wolfe Research, expect the pain in equities to persist next year. In a recent report, Senyek explained why he thinks the U.S. economy will crater next year, while inflation will remain stubbornly persistent, leading to “stagflation.”
A 35% pullback? – As a result, Senyek expects the S&P 500 to potentially fall by as much as 35% next year. A decline of that magnitude from Tuesday’s close would drive the S&P 500 to around 2,500, a level last touched in the wake of the March 2020 crash, according to FactSet.“We believe that the amount of [monetary] tightening that’s already taken place is enough to push in the U.S. economy into a recession, and that U.S. real GDP growth will hit -2% to -3% on a [year-over-year] basis at some point in 2023,” Senyek said, in a note.
The S&P 500 has fallen roughly 20% this year through Tuesday, while the Dow Jones Industrial Average DJIA, -1.05% was down 10% and the Nasdaq Composite COMP, -2.18% was off nearly 33%.”
markets.businessinsider.com 30-11-2022 The S&P 500 could drop 24% within months as earnings gloom reaches a crescendo, Morgan Stanley’s investment chief warns – by George Glover
- The S&P 500 could fall 24% from current levels in early 2023, Morgan Stanley’s Mike Wilson predicted.
- Companies will downgrade their earnings targets and that will drive a selloff in US stocks, he said.
- “The bear market is not over,” he told CNBC Tuesday, adding stocks are set for a “wild ride”.
reuters.com 28-11-2022 Deutsche Bank: Equity bear market rally will stretch into 2023, dollar weaker – A bear market rally in equity markets will continue into next year before slumping as a recession in the world economy takes hold, Deutsche Bank said in its world economic outlook published on Monday – by Dhara Ranasinghe
economist.com 19-11-2022 False Dawn
ft.com.lex 12-11-2022 stock markets: bear scare
fortune.com 3-11-2022 Silicon Valley is telling us something about the recession to come with a huge wave of layoffs and hiring freezes this week – By Tristan Bove
reuters.com 2-11-2022 Fed’s Powell: ‘Soft landing’ chances have narrowed
reuters.com 2-11-2022 Fed jacks up interest rates again, hints at smaller increases ahead – By Howard Schneider and Ann Saphir
ft/com 29-10-2022 Welcome to the world of the polycrisis – by Adam Tooze
fortune.com 21-10-2022 Larry Summers warns of a dreaded economic ‘Doom Loop’ and says America should pay close attention to the UK’s troubles – by Christopher Anstey
…”…Once the US does enter a recession, Washington will need to be careful with regard to deploying any fiscal support package, Summers also said — given the danger of a negative response in the bond market. It’s one consequence of having rapidly run up government borrowing in recent years, he said.
“Unfortunately, I think we fired the fiscal cannon so strongly that there’s going to be limited room for discretionary fiscal policy if we have another recession,” he said.”
eand.co 17-10- 2022 Why We’re Headed for the Mother of All Financial Crises -Everybody’s Broke — And It’s About to Get a Lot Worse – by umair haque
…”…That meagre $5K that the average person has in their account is literally the ashes of neoliberalism, and it’s love of hyper-capitalism. It didn’t work. It left people poor — so poor that democracies destabilized and metasiszed into fascism, while billionaires hoarded all the wealth, leaving it next to impossible for societies to invest in much to begin with. The old ways and old ideologies are historic failures. We are going to have to rethink it all …”…
fortune.comI 17-10-2022 Investors peg one major economy as the first to tip into a recession—and name another whose assets will lead the recovery – by Edward Haerrison
Investors are looking beyond a looming global recession and they see one country – and its financial markets – emerging strongest on the other side. U.S. stocks and bonds will lead the way out of the current wave of market turmoil, according to respondents in the latest MLIV Pulse survey. Meanwhile they reckon it’s close to an even bet as to whether the U.K. economy or the euro area will fall into a slump first.
About 47% of the 452 respondents expect the U.K. to win that unwelcome prize, perhaps reflecting greater financial stability risks in that country, compared with 45% who said Europe. Only 7% saw the U.S. becoming the first economy to crack. And both an American rebound and a prolonged European downturn will pose different sets of risks for wealth and income inequality.
The trans-Atlantic gap reflects the war in Ukraine and energy crunch adding long-run economic pressures across Europe that are less prevalent in the U.S. Even so, investors indicated that the Federal Reserve is just about as likely as the European Central Bank or the Bank of England to stop its cycle of interest-rate hikes first. …”…
ft.com 15-10-2022 – Pensions crisis investigation needed – by John Ralfe
ft.com 15-10-2022 IMF and World Bank highlight fragile state of global economy
bbc.co.uk/ 15-10-2022 Will the UK financial chaos spark a wider meltdown?
fortune.com 14-10-2022 Larry Summers thinks he knows what could be triggering a giant global recession right now and warns ‘the fire department is still in the station’
fortune.com 13-10-2022 Everyone’s been waiting for a global recession and we might have just hit a ‘tipping point,’ major energy body says
time.com / ggpage 13-10-2022 Nouriel Roubini: We’re Heading for a Stagflationary Crisis Unlike Anything We’ve Ever Seen – read here
theatlantic.com 10-10-2022 How the Fed Could Accidentally Break the Global Economy
economist.com 8-10-2022 Financial markets are in trouble. Where will the cracks appear?
economist.com 8-10-2022 The world’s most important financial market is not fit for purpose
reuters.com 4-10-2022 Analysis: UK bond market crash takes shine off Big Bang plans for London – by Huw Jones
…”…The real issue for me is that if asset prices decline and sterling remains incredibly low, then UK plc is for sale because the Americans can come in and buy basically what they want. Why would you put your company here in the UK knowing they become vulnerable?” Haynes asked.
Bill Campbell, global bond portfolio manager at DoubleLine, said the Bank of England’s credibility was also on the line.
“We have further reduced our UK exposure, as we are trying to get a better sense on the trajectory of policy and if it makes sense,” Campbell said.
Even before the bond market crash there were concerns among some in the financial sector over how Truss and Kwarteng were planning a 1980s-style “Big Bang” of deregulation, starting with scrapping a cap on banker bonuses inherited from the EU.
There is already an extensive bill before parliament to update existing financial rules, ease insurance capital requirements and begin regulating new sectors like stablecoins.
The City of London Corporation, which runs the “Square Mile” financial district, said a government focus on financial services competitiveness would support Britain’s economic revival.
But Truss’ promise to scrap all remaining EU rules by the end of 2023 has raised some concerns given the existing rulebook is largely based on tested international norms which Britain was key in shaping, and that radical change brings costs for banks.
“Any approach to regulatory change will need to recognise that reality,” TheCityUK’s Celic said.
A review of financial watchdogs and the Bank of England’s mandate promised by Truss, also raised concerns about political interference in regulators, whose independence is long seen as one of the City’s international strengths.
Kwarteng has rolled back to some extent, telling financiers last week he would not tinker with the current structure of regulators – quelling talk of a merger of watchdogs for now – and saying on Monday he had never “rubbished” the central bank.”
telegraph.co.uk 30-9-2022 There is a ticking time bomb under the financial system – The crisis in pension funds was allowed to hide in plain sight – by Ben Marlow
ft.com 1-10-2022 UK pension fund crisis shows there is no capitalism without capital or risk – by Michael Tory
editioncnn.com 29-9-2022 Dow plunges and is back in a bear market – Paul R. La Monica
..”…It’s not just stocks that have tumbled. It’s the bear market for just about everything. There have been few places for investors to run and hide this year. Bond yields have surged, which means that prices are down. That weighs on returns. Bonds are supposed to be safe havens during times of market and economic volatility. But two popular, widely held bond funds, the Vanguard Total Bond Market Index Fund ETF (BND) and iShares Core U.S. Aggregate Bond ETF (AGG), are both down nearly 16% in 2022. Think gold is a good place to ride out the storm? The price of the yellow metal is down 10% this year. And forget about cryptocurrencies. Bitcoin prices have fallen off a cliff, plummeting nearly 60% in 2022…”…
indiatimes.com 20-9-2022 Dr Doom” Roubini expects a ‘long, ugly’ recession
Synopsis – Roubini expects the US and global recession to last all of 2023, depending on how severe the supply shocks and financial distress will be. During the 2008 crisis, households and banks took the hardest hits. This time around, he said corporations, and shadow banks, such as hedge funds, private equity and credit funds.
economist.com 9-2022 Why investors are reaching for the astrology of finance – That technical analysis is in vogue indicates a certain uneasiness
“Why did the markets move? Most investors, analysts and even financial journalists will look, first and foremost, for news. Perhaps the jobs data were published, a firm announced it was being acquired or a central banker gave a sombre speech. Yet a small, dedicated cult of “chartists” or “technical analysts” believes that the movement of stocks, bonds and currencies can be divined by the making and interpreting of charts.
Their methods are many, varied and wackily named. A “death cross” is when a short-term moving average of an asset’s price falls below a long-term moving average. “Fibonacci retracement levels” rely on the idea that an asset climbing in price will fall back before rising again. Such backsliding is supposed to stop at levels based on Fibonacci numbers, like a 61.8% drop. The “ichimoku cloud”, loved by Japanese traders, sees the construction of a cloud by—bear with this—shading the area between two averages of high and low prices over the past week, month or two months. A price above the cloud is auspicious; one below it is ominous. …
… Perhaps the real value of technical analysis is what its use tells you about market conditions. No one bothers with the chartists’ pretty drawings when the economy is good, profits are high and stocks are moving smoothly higher—nor, indeed, in the depths of a frantic bear market, when prices will plunge through any and all levels technical analysts are wont to draw. Much as people who are feeling restless about the direction of their lives are more prone to become interested in astrology, investors who are uneasy about the direction of the markets will reach for the easy reassurance of an eye-catching diagram.
That some are laying the blame for the end of the summer rally on a technical tripwire suggests they have little idea what is really going on. Perhaps Buttonwood should derive a technical indicator of her own: the more regularly chartist analysis lands in her inbox, the clearer it is that no one has any clue as to why the markets are moving. …”…
bloomberg.com 9-2022 No Soft Landing Ahead to Save Stocks, Goldman’s Oppenheimer Says – Job market strength emboldens Fed’s tightening plans, he says – ‘Market will get to pricing more recession risk’: Oppenheimer – by Emily Graffeo, Alix Steel
bloomberg.com 28-2-2022 Stocks Face Another Sharp Slide After Powell’s Hawkish Pivot – Fed chair rebuffed expectation of tempered monetary tightening – Japan, Australia bourses on Monday are set to track US slump
…”…Futures shed almost 2% for Japan and 1.5% for Australia after a 3.4% plunge in the S&P 500 index. The slide was sparked by Powell’s rebuttal of the notion that the trajectory of monetary tightening could soon be tempered. … the prevailing message from the symposium was that borrowing costs are going up from the US to Europe to Asia. Officials are combating some of the highest inflation in a generation, stoked by damage to supply chains for energy and components due to Russia’s war in Ukraine and Covid curbs in China.” …
reuters.com 27-8-2022 ECB needs ‘significant’ rate hike in Sept, Villeroy says
economist.com 20-8-2022 A fresh American bull market is under way. Can it last?
cnbc.com 22-8-2022 European markets fall as rate hike fears resurface; euro at dollar parity – by Elliot Smith
fortune.com 20-8-2022 Nobel winner Michael Spence says fear of U.S. recession ‘is receding, but I don’t think it’s over’
…”…We’re in a world in which asset prices are going to be reset, not just in public markets, but in private markets, where valuations have come down dramatically. There’s probably a whole collection of former unicorns that aren’t unicorns anymore. I don’t expect these things just to collapse, but an asset-price reset in the downward direction seems pretty inevitable. …”…
ft.com 20-8-2022 Investors pivot from value stocks as recession fears ‘haunt’ markets
fortune.com 17-8-2022 Stocks’ big rally from the bear market is more like a dead cat bounce, UBS says. ‘We expect renewed volatility ahead’ – by Will Daniel
de.extraetf.com 8-2022 Börsen-Crash? Der längste Bullenmarkt der Börsengeschichte – er ist zu Ende!
economist.com 30-7-2022 Nothing New on Wall Street
thetimes.co.uk 9-8-2022 End of US bear market in sight amid hopes recession will be avoided
America’s oldest stock market index moved closer to exiting a bear market yesterday after the publication of strong jobs numbers on Friday and amid hopes that the world’s largest economy can avoid a recession. …
fortune.com/ 9-8-2022 Robert Shiller predicted the 2008 housing bubble. Here’s his 2022 call – By Lance Lambert
Robert Shiller released a book in 2000 titled Irrational Exuberance, which proclaimed the stock market was a bubble. Soon afterward, the tech bubble burst. Then in 2004, the Yale economics professor called attention to spiking real estate prices with a paper titled Is There a Bubble in the Housing Market? By 2007, Shiller predicted its bust was inevitable. Soon afterward, of course, the 2008 housing bubble burst.
As the pandemic housing boom—which has pushed up U.S. home prices by 42% over the past two years—fizzles out, it raises the question: Does Shiller think we’re in another housing bubble?
On Sunday, Shiller spoke with Yahoo Finance. He told the outlet that he once again thinks the U.S. housing market is headed for trouble.
“Home prices haven’t fallen since the 2007–09 recession. Right now things look almost as bad,” Shiller said. “Existing home sales are down. Permits are down. A lot of signs that we’ll see something. It may not be catastrophic, but it’s time to consider that.”
A drop in home prices, Shiller says, looks very possible.
forbes.com 7-8-2022 ‘Opening The Floodgates’—Crypto Braced For A $10 Trillion Earthquake As The Price Of Bitcoin, Ethereum, BNB, XRP, Solana, Cardano And Dogecoin Swing – by Billy Bambrough
realtor.com 2-8-2022 The U.S. May Already Be in a Recession: Will the Housing Market Collapse Again? By Clare Trapasso
The economy is shrinking. Inflation is soaring, and the stock market is losing value. Searches for “Is the U.S. officially in a recession?” are now trending on Google. If the nation isn’t already in a recession, it might well be on the precipice of one. And it’s left those with PTSD from the Great Recession of the late aughts wondering if another downturn could sink the hot housing market as well.
fortune.com 2-8-2022 Recession 2022: Why we may get a soft landing instead of an economic crash – By Bernhard Warner
economist.com 30-7-2022 Why it is too early to say the world economy is in recession
bloomberg.com 13-7-2022 Stocks Need to Fall More to Price In the Hit of a US Recession – S&P needs to be at 3,586 for downturn to be priced in: BI – Bank of America economists forecast ‘mild’ recession this year – Stock-market investors are still wagering that the US economy will avoid a recession even as the Federal Reserve and other central banks raise interest rates aggressively to get decades-high inflation under control – by Jess Menton
ft.com 25-6-2022 Recession in US and Europe ‘increasingly likely’, warn economists
linkedin.com/ 6-2022 Turbulence Ahead by Stephen Dover
…”…. Recession odds increase : What, then, do our indicators say about recession odds? Worryingly, our broad probability model suggests the odds of a US recession in the next 12 months have roughly doubled, from about 20% late last year to nearly 40% today.[4] That’s roughly the same as a Bloomberg published model that uses a single input, the shape of the US Treasury yield curve. Even more distressing, Bloomberg’s two-year, multivariate recession probability model suggests the odds of a US recession over the next 24 months are now over 70%![5] …”…
dailyreckoning.com 6-2022 These People Never Learn – by James Rickards
…”…The bottom line is monetary policy can do very little to stimulate the economy unless the velocity of money increases. And the prospects of that happening aren’t great right now. But what about fiscal policy? Can that help get the economy out of depression? Let’s take a look… “…
marketwatch.com 16-6-2022 ‘The economy is going to collapse,’ says Wall Street veteran Novogratz. ‘We are going to go into a really fast recession – Veteran investor and bitcoin bull Michael Novogratz’s economic outlook is not rosy – by Mark DeCambre
economist.com 16-6-2022 The Fed’s flawed plan to avoid a recession – The central bank thinks it can reduce job vacancies without job losses
…”… The perils of positive thinking – The Fed’s maths are sound. Yet its argument looks like the latest instance of over-optimism among monetary policymakers, who have downplayed the extent of the inflation scare and underestimated the action needed to fight it. Why would tighter policy shrink vacancies but not increase layoffs? Higher interest rates reduce consumption and investment, which might cause the weakest firms to shrink or even shut down. Mr Waller said that “outside of recessions, layoffs don’t change much”. Yet recession is precisely the outcome that pessimists fear will follow from higher rates.
The historical record backs up that worry—and provides little support for the Fed’s argument. Research by Alex Domash and Larry Summers, both of Harvard University and firmly in the pessimists’ camp, finds that there has never been an instance in which the vacancy rate has fallen substantially without unemployment rising significantly within two years. A reduction in vacancies of 20% is associated with, on average, a three-percentage-point rise in the unemployment rate—comparable with what is implied by the recent Beveridge curve. Mr Waller’s argument implies a drop in vacancies of fully 35%.”
A final problem with the Fed’s plan is that it does not preclude persistent inflation. Even if the labour market returns to balance, inflation could stay high if workers and firms come to expect rapid price increases. In economics textbooks it is high inflation expectations, not the difficulty of bringing demand back into line with supply, that makes it hard to slow price rises without causing a recession. That is why it is such bad news that people’s long-term inflation expectations have recently risen noticeably, according to a survey of consumers by the University of Michigan. Getting expectations down typically means running the economy cold. Each time the Fed is proved to have been overly optimistic, its credibility ebbs, making a dire outcome more likely.”
businessinsider.com 15-6-2022 The crash in the Nasdaq is looking a lot like the bursting of the 2000 dot-com bubble — and that lasted almost 3 years – by Harry Robertson
The Nasdaq stock index is plunging faster than during the dot-com crash in 2000, dredging up bad memories on Wall Street. Back then, the index fell for around two-and-a-half years and only regained its 2000 peak roughly 15 years later.Investors are praying the current downturn doesn’t turn into a similar rout, but the similarities are striking.
bloomberg.com 15-6-2022 Wall Street Sounds a Louder Recession Call After Fed Rate Hike -Guggenheim CIO, economists among those seeing contraction -Federal Reserve raised interest rates most since 1994 – by Katia Dmitrieva
“Analysts increasingly see a recession looming in the US following the Federal Reserve’s biggest increase in interest rates since 1994 and signs of weaker consumer spending. …
unherd.com 14-6-2022 Will a bear market lead to a new financial crisis? The worst is yet to come
9-6-2022 Larry Summers : Deep recession may be needed to end inflation By Tristan Bove
economist.com 4-6-2022 America’s next recession – Do not underestimate the perils that lie ahead.
marketwatch.com 3-6-2022 Fink, Dimon and Musk have the blues. Mishtalk says not gloomy enough – by Barbara Kollmeyer
That anxious hum among Wall Street exectutives is getting louder. U.S. stock index futures are down, following stronger-than-forecast jobs data, with technology out in front. After crushing remote-work hopes of Tesla workers, CEO Elon Musk now reportedly wants a 10% headcount cut due to a “super bad feeling” about the economy. …
… Our call of the day says these honchos are not worried enough. A “deep recession” should start this quarter or early in the next, with U.S. GDP estimates tanking, but “still too high,” says Mike “Mish” Shedlock, investment advisor for SitkaPacific Capital Management.
In his Mish Talk blog, he points to the Atlanta Fed’s GDPNow Forecast that models for second-quarter GDP, which is currently at 1.3%, down from 1.9% on May 27. He says watch real final sales, the “true bottom for the economy,” which is holding at a “very respectable 2.9%. …The chart
… The Market Ear blog shares this chart from Tier1Alpha that shows the rise and fall of Cathie Wood’s ARK Innovation ETF ARKK, -5.41% against the dot-com bubble of 20 years ago. “ARKK’s dot.com analogy chart has continued to work very well. Do we start to chase dogs like ARKK if this squeeze becomes more violent to the upside? It would be almost too perfect,” writes Market Ear. …
fortune.com 28-5-2022 There are 2 very different kinds of recessions—and the U.S. is likely headed for something totally different than 2008 by Will Daniel
economist.com 25-5-2022 Wall Street’s housing grab continues – As rising rates deter families from buying, being a rentier looks as appealing as ever
Spring weather often brings a stampede of homebuyers. Blossoming flowers and gushing sunlight after the winter slog make homes look more inviting. Not this year, though. Across the rich world house-hunters perturbed by high prices and rising rates are holding fire on mortgage applications. In America new home sales have crashed to two-year lows.
One group of buyers, however, remains unfazed: Wall Street. What began as an opportunistic bet on single-family housing during America’s subprime crash of 2007-10 has morphed into a mainstream asset class. Today all sorts of institutions—from private-equity firms to insurers and pension funds—are piling into the sector. They are unlikely to vacate it: being a rentier looks as appealing as ever.
One reason is that demand for rental homes will jump as home ownership gets costlier. American savers need on average $15,000 more than they did before the pandemic to afford a 10% downpayment. Higher borrowing costs are forcing millennials nearing their peak buying years into longer leases. This coincides with a larger trend fuelled by covid-19: a shift from flats towards suburban homes with gardens and office space—which many households cannot afford and must therefore rent.
telegraph.co.uk 23-5-2022 The world’s financial system is entering dangerous waters again, warns guru of the Lehman crisis – Columbia professor Adam Tooze: ‘We don’t know what is going to break until it does, but there are a lot of reasons to worry’ – By Ambrose Evans-Pritchard
telegraph.co.uk 21-5-2022 The stock market crash has only just begun – There is still a lot of pain ahead – and this bear market will be a big one – Matthew Lynn
ft.com 20-5-2022 Wall Street stocks flirt with bear market as growth concerns mount.
ft.com 20-5-2022 Investors spooked as gloom grips markets – Even veterans accept we are at a historic juncture as inflation surges – by Katie Martin
ft.com 21-5-2022 Is the global economy heading for recession? by Chris Giles
ft.com 20-5-2022 What are investors supposed to trust in now? by Merryn Somerset Webb
businessinsider.com 18-5-2022 ‘Big Short’ investor Michael Burry warns stocks will crash and rallies won’t last. Here’s a roundup of his recent tweets and what they mean. by Theron Mohamed
“The Big Short” investor Michael Burry expects a far steeper decline in the stock market. The Scion Asset Management chief’s view is based on how past crashes have played out. Burry warned brief rallies were likely, and joked about his penchant for premature predictions.
Michael Burry, the hedge fund manager of “The Big Short” fame, rang the alarm on the “greatest speculative bubble of all time in all things” last summer. He warned the retail investors piling into meme stocks and cryptocurrencies that they were careening towards the “mother of all crashes.”
The Scion Asset Management chief’s dire prediction may be coming true, as the S&P 500 and Nasdaq indexes have tumbled 15% and 24% respectively this year. In tweets he’s since deleted, Burry has taken credit for calling the sell-off, explained why he expects further declines, and cautioned against buying into relief rallies. …”…
businessinsider.com/ 15-5-2022 Wall Street is heading into a summer from hell — and top investors say it’s going to bring a near-biblical reckoning to the market
moneyweek.com 15-5-2022 Get set for another debt binge as real interest rates fall – Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble – by Matthew Lynn
…”In the space of just a few months the price of money has risen ten-fold, and that is a dramatic rise, at least in percentage terms. At the margins it will make a difference. … Yet the really important number is the real interest rate; the cost of money after you allow for inflation. And that tells a different story. … It is easy to be fooled by quarter-point rises into thinking that rates are being tightened. That is what the Bank says it is doing, and that is what the headlines say. That is to completely mis-read what is actually happening. In truth, as inflation continues to accelerate at a far faster rate than the cost of money, in real terms rates are being cut, and dramatically so. We have a few decades of history to tell us that is only going to stoke another wild bubble in borrowing and asset prices – and with this one we don’t even know when it will end.”
theguardian.com 16-5-2022 Cutting City regulation risks another financial crash, say economists – Leading economists publish letter to Rishi Sunak in response to proposed financial services and markets bill – by Kalyeena Makortoff
ft.com 14-5-2022 Junk bond party starts to wind down by Joe Rennison
ft.com 14-5-2022 Where the next financial crisis could come from by John Dizard
ft.com 2-4-2022 Crypto vs gold: the search for an investment bolt hole John Plender
economictimes.indiatimes.com 28-2-2022 Here’s the biggest threat to stock markets shaken by Russia-Ukraine war -by Joanna Ossinger
Synopsis: U.S. stock futures plunged as much as 2.9% Monday, erasing gains from late last week as speculation that central banks would throttle back on tightening policy gave way to worry that the geopolitical crisis in Europe could slow global economic growth. – … “A recession is likely to start at some point this year,” said Matt Maley, chief market strategist at Miller Tabak + Co. “We’re headed for a bear market.” …
businessinsider.com 21-2-2022 We really did hit peak stupid’: Elite investors on Wall Street say privately that the market is about to undergo a cataclysmic shift — and many that the market is about to undergo a cataclysmic shift — and many won’t survive the ‘washout’ Linete Lopez
forbes.com 21-2-2022 ‘Peak Stupid’—Cataclysmic Market Warning Issued As The Price Of Bitcoin And Ethereum Crash – by Billy Bambrough
Bitcoin, ethereum and other cryptocurrency prices have crashed as the crisis in Ukraine rattles global investors. The bitcoin price, dipping under $38,000 per bitcoin, is down 10% on this time last week and almost 30% from its early February high of almost $46,000. Ethereum, the second-largest cryptocurrency after bitcoin, has seen similar declines—with fierce competition weighing on the ethereum price. Now, as assets that have soared over the last couple of years see heavy sell-offs in the face of looming Federal Reserve interest rate hikes, one billionaire value investor has warned some are going to get badly hurt in the coming “cataclysmic market shift.” “I think there’s going to be a few people who’ve really gone over their skis and will get hurt badly,” the unnamed billionaire told Insider, with bitcoin and crypto named along with blank-check SPACs and retail-led meme stocks as examples of overblown market exuberance.
ft.com 19-2-2022 Investors brace for central banks’ retreat from bond markets – Tommy Stubbington, Kate Duguid
The biggest buyers in bond markets are now poised to become sellers, as central banks who purchased trillions of dollars of debt since the 2008 financial crisis start trimming their vast portfolios. Leading central banks such as the US Federal Reserve and Bank of England are widely expected to kick off the process of “quantitative tightening” in the coming months, complicating the outlook for bond investors who are already grappling with runaway inflation and the spectre of aggressive interest rate rises this year. …
…The looming tightening of monetary policy marks a stark contrast to the coronavirus res The Federal Reserve will probably begin the QT process later this year, investors say. It may offer more details of plans to wind down its $9tn balance sheet at its meeting next month, at which it is widely expected to raise interest rates for the first time since the start of the pandemic…
“I’m sure the Fed is going to be watching the UK. It’s probably quite a useful control experiment,” said Steven Major, HSBC’s global head of fixed income research. “If you look at [low long-term yields in the UK], the suggestion is there are plenty of willing buyers if the central bank just gets out of the way.”
yardeni research pdf 18-2-2022 Central Bank: Monthly Balance Sheets – by Edward Yardeni
marketwatch.com/ 17-2-2022 Stock market faces the most ‘massive misallocation’ of ‘capital in the history of mankind,’ says ARK’s Cathie Wood By Mark DeCambre
independent.ie 17-2-2022 The next financial crisis is coming, and it will be stamped ‘made in China’ – The world is awash in debt and rich nations now owe the equivalent of two-and-a-half times their economic output, far more than in the financial crisis. One country stands out as having accumulated more debt in a short period of time than any other – China – and it now poses the greatest risk to the post-pandemic recovery. by David Chance
morningstar.com 11-2-2022 Grantham on The Long View: Everything You Need to Know About the U.S. Stock Market ‘Super Bubble’ – And how the history of bubbles might foreshadow the fallout – by Jessica Bebel
newswise.com 3-2021 Its curvature foreshadows the next financial bubble – An international team of interdisciplinary researchers has identified mathematical metrics to characterize the fragility of financial markets. Their paper “Network geometry and market instability” sheds light on the higher-order architecture of financial systems and allows analysts to identify systemic risks like market bubbles or crashes – by Max Planck Society
economist.com 11-2-2022 The next crisis – What would happen if financial markets crashed? – Look to history for a guide, but know that next time will be different
…”…Yet the reinvention of finance has not eliminated hubris. Two dangers stand out. First, some leverage is hidden in shadow banks and investment funds. For example the total borrowings and deposit-like liabilities of hedge funds, property trusts and money market funds have risen to 43% of gdp, from 32% a decade ago. Firms can rack up huge debts without anyone noticing. Archegos, an obscure family investment office, defaulted last year, imposing $10bn of losses on its lenders. If asset prices fall, other blow-ups could follow, accelerating the correction.
The second danger is that, although the new system is more decentralised, it still relies on transactions being channelled through a few nodes that could be overwhelmed by volatility. etfs, with $10trn of assets, rely on a few small market-making firms to ensure that the price of funds accurately tracks the underlying assets they own. Trillions of dollars of derivatives contracts are routed through five American clearing houses. Many transactions are executed by a new breed of middle men, such as Citadel Securities. The Treasury market now depends on automated high-frequency trading firms to function. …
Ordinary citizens may not think it matters much if a bunch of day-traders and fund managers get burned. But such a fire could damage the rest of the economy. Fully 53% of American households own shares (up from 37% in 1992), and there are over 100m online brokerage accounts. If credit markets gum up, households and firms will struggle to borrow. That is why, at the start of the pandemic, the Fed acted as a “market-maker of last resort”, promising up to $3trn to support a range of debt markets and to backstop dealers and some mutual funds. Was that bail-out a one-off caused by an exceptional event, or a sign of things to come? Ever since 2008-09 central banks and regulators have had two unspoken goals: to normalise interest rates and to stop using public money to underwrite private risk-taking. It seems that those goals are in tension: the Fed must raise rates, yet that could trigger instability. The financial system is in better shape than in 2008 when the reckless gamblers at Bear Stearns and Lehman Brothers brought the world to a standstill. Make no mistake, though: it faces a stern test.”
reuters.com/ 1-2-2022 Betting on a ‘very unlikely’ ECB rate move …”…With ECB rate rise bets piling up and four-five Fed rate hikes discounted already for 2022, the euro bounced off 19-month lows against the greenback and German bond yields rose to the highest since 2019. …”…
marketwatch.com 31-1-2022 Bears beware. Past corrections for the S&P 500 are only 15% on average, outside of recessions by Joy Wiltermuth
forexlive.com 31-1-2022 Does the S&P 500 Hitting SMA Mean a Bear Market Is Coming? – The S&P 500 hit a new record on the first day of trading this year, and since then has pretty much been heading downward.
research.danskebank/pdf 31-1-2022 UK BoE preview: Another rate hike and passive QT
bloomberg.com 8-2021 Liquidity Is Evaporating Even Before Fed Taper Hits Markets – Gap between money-supply growth and GDP is now below zero – Negative readings in last decade spelled trouble for S&P 500 – Fed Is ‘Adjusting the Dials’ on Inflation: Pimco’s Schneider – By Lu Wang
“A measure of U.S. financial liquidity whose declines foreshadowed two of the decade’s worst equity routs is flashing alarms even before the Federal Reserve embarks on its planned winding down of asset purchases. The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account. …”…
bloomberg.com 31-1-2022 Nasdaq Index Poised for the Worst January in Its 50-Year Existence – Tech stocks priced on future earnings dented by rate hike bets – Despite gains Monday, shares still far from avoiding milestone – By Thyagaraju Adinarayan
ft.com 29-1-2022 A market crash will depend on which bit of the equation investors got wrong M.S.Webb
ft.com/ 29-1-2022 Darker market mood sets in, one year after GameStop frenzy
ceconomist.com 29-1-2022 Quantitative tightening is no substitute for higher interest rates – Reversing trillions of dollars of asset purchases may prove to be an unreliable tool
theguardian.com 25-1-22 If Jeremy Grantham is talking about a US ‘superbubble’, we should listen – The Boston-based fund manager has hard-to-deny evidence to back up his prediction of a ‘wild rumpus’ – by Nils Pratley
…”…He ran through his checklist of a late-stage bubble, of which “the most important and hardest to define” is “the touchy-feely characteristic of crazy investor behaviour”. On that score, he has hard-to-dispute examples: the meme stock merriness of a year ago; dogecoin, a parody cryptocurrency, rising to a value of $90bn “because Elon Musk kept joking about it”; and shares in car hire firm Hertz soaring because the company said it would order some Teslas. Those episodes are now over, reckons Grantham, and we’re on to “the vampire phase” of the bull market. Share prices have defied Covid, the end of quantitative easing and the promise of higher rates but, “just as you’re beginning to think the thing is completely immortal, it finally, and perhaps a little anticlimactically, keels over and dies”. …”…
businessinsider.com 22-1-2022 John Hussman, a notorious market bear who called the 2000 and 2007 crashes unloads on the Fed for creating ‘the most extreme financial bubble in US history’ — and warns of a 70% drop in the S&P 500 just to return to normal valuation levels – by William Edwards
businessinsider.com 2017 ‘Wall Street has gone completely mad’ — One market bear forecasts a decade of stock losses – by Joe Ciolli
By multiple measures, US equity valuations are close to the highest on record. Investor and former professor John Hussman doesn’t think this is a sustainable situation, and forecasts that stocks will see negative returns over a 12-year period. Hussman’s perma-bearish views have seen mixed success in the past, and a good number of Wall Street strategists are bullish on US stocks through 2018.
maroonmacro.substack.com 19-1-2022 -39- Repo Review: Sponsored Repo
“In this issue of Monetary Mechanics, I am going to talk about the effect of the explosion in sponsored repo on the broader short-term interest rate complex, as well as how it fits into the broader development of money markets in the post-GFC financial system. … My objective here is to attempt to provide a high-level overview of the most fundamental features of sponsored repo to attempt to uncover and understand what (if any) effect this practice has on the rest of the global financial system. I will do my best to place sponsored repo within the proper context relative to the rest of the US repo market complex, and also to impart some informative, interesting, and useful insights about sponsored repo that may not have been fully fleshed out by other people. …”…
the economist.com 1-2022 Why capital will become scarcer in the 2020s – Populism, climate change and supply-chain fixes will raise the long-term cost of capital
the economist.com 11-2021 Will the world economy return to normal in 2022? – If it does not, a painful economic adjustment looms -by Henry Curr
theguardian.com 4-2021 Bill Gates is the biggest private owner of farmland in the United States. Why? – Gates has been buying land like it’s going out of style. He now owns more farmland than my entire Native American nation – by Nick Estes
whoownsengland 2017 WHY IS JAMES DYSON HOOVERING UP LAND?
…”…Dyson has also been making headlines lately by warning the Government not to cut farm subsidies after Brexit. Commentators have been quick to point out that Dyson himself is one of the biggest beneficiaries of the current system of farm subsidies: last year, his company, Beeswax Farming (Rainbow) Ltd, received £1.8million in payments. …”…
Markets Now and Then – earlier articles here
