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Economische aanraders 03-05-2020

economische aanraders

Economische aanraders: Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 15 belangrijke of informatieve artikelen en interviews die vooral de voorafgaande 7 dagen op economisch terrein verschenen op onafhankelijke sites.

De kop is de link naar het oorspronkelijke artikel, waarvan de samenvatting of de eerste (twee) alinea’s hier gegeven worden. Er zijn in deze rubriek altijd verschillende economische scholen vertegenwoordigd, en we streven er naar die diversiteit te handhaven.

We nemen wekelijks ook een paar extra links op naar artikelen die minder specialistische kennis vereisen. Deze met *** gemerkte artikelen zijn ons inziens ook interessant voor lezers met weinig basiskennis van economie.

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Money Pumping Won’t Fix What’s Wrong with the Economy – Frank Shostak
2 mei

To counter the likely severe side effects of the lockdowns on the economy—introduced to prevent the spread of the coronavirus—the Federal Reserve has embarked on massive expansion of its balance sheet. The size of the Fed’s assets jumped to $6.2 trillion in April this year from $3.9 trillion in April last year—an increase of 58.9 percent.
In response to this pumping, the momentum of the money supply has jumped sharply, with the yearly growth rate climbing to 23.7 percent in the week ending April 13, from 13.1 percent in March and 2.4 percent in April 2019.
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Three Reasons Why The Eurozone Recovery Will Be Poor – Daniel Lacalle
3 mei

The Eurozone economy is expected to collapse in 2020. In countries like Spain and Italy, the decline, more than 9%, will likely be much larger then emerging market economies. However, the key is to understand how and when will the eurozone economies recover.
There are three reasons why we should be concerned
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***Our Inevitable Collapse: We Can’t Save a Fragile Economy With Bailouts That Increase Fragility – Charles Hugh Smith
1 mei

By bailing out the sources of systemic fragility with trillions of dollars, the Fed has shifted the risk to the entire financial system and the nation’s currency.
That the global economy is fragile is painfully obvious to all. What is less obvious is the bailouts intended to “save” the fragile economy actively increase its fragility, setting up an inevitable collapse of the entire precarious system.
Systems that are highly centralized, i.e. dependent on a handful of nodes that are each points of failure–are intrinsically fragile and prone to collapse. Put another way, systems in which all the critical nodes are tightly bound are prone to domino-like cascades of failure as any one point of failure quickly disrupts every other critical node that is bound to it.
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The Fed Has Gone Nuts. And It Can Get Worse – Peter St. Onge
27 april

With its $700 billion bond-buying expansion in response to the COVID crisis, the Federal Reserve has thrust itself into the limelight. Like a sixteen-year-old with a credit card, the Fed is salivating over what money-printing powers it shall seize next. How is the prudent investor to respond?
First, what the Fed’s already done: pushed interest rates to zero and expanded into “unlimited” buying of assets, now reaching to corporate bonds and local government bonds. These bring the same concerns we had in 2008: trillions in new money to dilute the spending power of current savers, along with the risk of “moral hazard” where government covers the losses for corporate, and government, irresponsibility.
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Here Is Hugh Hendry’s 3-Step Plan To Save The World From Financial Collapse – Tyler Durden
2 mei

It’s official: despite still technically retired in St Barts where he is a “luxury real-estate, mentor, advisor, paddle-surfer” according to his twitter profile, last week’s markets tweetstorm appears to have awoken if not the investing, then at least the analytical “primal urge” in the Scottish investor, who ran the Eclectica macro hedge fund for 15 years until he shuttered it in September 2017 (his farewell letter can be found is here) disgusted with how broken and impossible to navigate capital markets had become as a result of central bank intervention.
And in case it wasn’t clear that after a three year hiatus Hendry suddenly finds himself having much more to say, late on Friday the macro investor followed up last week’s “inaugural” commentary with another massive tweetstorm (Hugh: it may be easier to just write a blog post or alternatively, send it here and we will post it), spanning hundreds of tweets, discussing – in far more whimsical, if typically Hendrian terms – what is arguably the most important concept: when does money printing become inflationary (i.e., the catalyst that will make David Einhorn’s long-term forecast correct).
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European Banks Reveal Scale & Complexity of Crisis. Shares Hammered Back to 1987 Level – Nick Corbishley
1 mei

They haven’t gotten over Financial Crisis 1 and the Euro Debt Crisis. Now there’s a new crisis. Deutsche Bank’s CEO going on TV to soothe nerves didn’t help matters.
The biggest European banks have started to report their earnings against a bleak backdrop of locked down economies, plunging economic activity, surging business closures and rising loan defaults. Each earnings call laid bare the scale, scope and complexity of the problems and challenges facing a European banking sector that never really recovered from their last two crises — the Global Financial Crisis followed by the Euro Debt Crisis.
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***The Unseen Costs of Government-Forced Lockdowns – Elizabeth Wilson
29 april

[Author’s note: This is my modified version of Frédéric Bastiat’s great work “That Which is Seen, and that Which is Not Seen,” as applied to the current COVID-19 panic and the resulting 2020 Great Lockdown.]
“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause—it is seen. The others unfold in succession—they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference—the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.”
~Bastiat-
Chapter 1. Economic Shutdown
Have you ever witnessed the anger of the business owner, Sally B., when her careless government reduces her revenue by 60 percent due to a lockdown? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: “It is an ill wind that blows nobody good. Everybody must live, and why should we care that businesses are being closed or struggling?”
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New evidence from the UK’s Enterprise Finance Guarantee scheme – Juanita Gonzalez-Uribe, Su Wang, Simeon Djankov
30 april

Loan guarantees to small businesses are emerging as a main policy response during the COVID-19 crisis. Using evidence from the UK’s Enterprise Finance Guarantee scheme from 2009, this column argues that such policies enable some financially constrained firms to retain workers that otherwise would have been laid off, and whose retention was fundamental in rebuilding the businesses post-crisis. However, less-educated workers in jobs with low training costs are more likely to be laid off, implying that the guarantee policy is regressive.
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Keynesian Fallacies Are Not Just Wrong, but Dangerous – Robert P. Murphy
1 mei

As an Austrian economist, I’ve known for years that Keynesian economics rests on crude fallacies—indeed, Tom Woods and I have an entire podcast dedicated to the (usually wrong) columns of Paul Krugman. But in the arguments over the coronavirus, we see that the Keynesian commentary isn’t just wrong, but dangerous.
Specifically, Neil Irwin, the senior economics correspondent for the New York Times, recently tweeted a link to what he described as, “The most important thread you will read today, or ever, to understand macroeconomics.” Naturally, I was anxious to experience this life-changing event. But the link was to a series of tweets from a former New York Fed researcher who was arguing that it was literally impossible for state governments to have saved more in preparation for the current crisis. This “insight” was attributed to Keynes’s paradox of thrift, and the analyst further argued that only federal budget deficits—fueled by Federal Reserve monetary inflation—would make it even possible for state governments or private households to collectively save more.
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Dividend Massacre in This Crisis is Already Breaking Records, But it Just Started – Wolf Richter
28 april

The old saw that dividend stocks are good for bear markets is actually a high-risk gamble.
Dividend yield can be an irresistible siren song in the era of central-bank interest-rate and bond-yield repression: Harley Davidson’s dividend yield was over 7% until this morning – when it announced that it would slash its dividend by 95%, from 38 cents to a symbolic 2 cents to conserve cash. Going forward, the dividend yield will be close to 0%.
GM, whose dividend yield was an alluring 6.5%, announced yesterday that it would eliminate its dividend altogether to save about $2 billion in cash; and going forward, its dividend yield will be 0%. Ford had a dividend yield of over 11% before it eliminated its dividend.
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The Current Crisis Has Its Roots in the Central Bank – Paul F. Cwik
27 april

We have been locked down for weeks. Classes have been canceled. Only essential activities are allowed. Although there is much to cover and analyze, I want to focus on the economics of the situation.
To understate it, the situation today is simply not good. The COVID-19 crisis has caused the world to lock down the population, which essentially ceased most commerce. While all businesses are affected in some way, a report by the US Chamber of Commerce shows that 24 percent of businesses are completely unable to conduct business in the emergency state, and further notes that 43 percent of all small businesses are less than six months away (and 10 percent less than one month away) from permanently closing their doors. From their highs in February, the DJIA is down approximately 20 percent and the NASDAQ is down about 15 percent. Initial claims for unemployment insurance since the US Department of Labor’s March 19 report exceed 22 million. A rough calculation places the current US unemployment rate above 17 percent. Yes, the situation is not good.
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The Crash Has Only Just Begun – Charles Hugh Smith
27 april

Everything, including a rational, connected-to-reality, effective financial system, is on back-order and unlikely to ship any time soon.
While the stock market euphorically front-runs the Fed and a V-shaped recovery, the reality is the crash has only just begun. To understand why, look at income and debt. Income–earned and unearned–is in free-fall, while debt–which must be serviced by income–is exploding higher.
Bailouts are not a permanent substitute for income. In the short-term, bailouts–in the form of payments to everyone who’s lost their source of earned income, i.e. their job–is a necessary substitute for lost income. But longer term, subsidizing income with borrowed money weakens the currency and the economy, as productivity stagnates.
As for servicing debt–the unemployed working class is getting an extra $600 a week not out of kindness but to make sure these households can continue to service their debts: auto and truck loans, student loans, credit cards, etc. Absent a federal bailout, millions of unemployed would cease making loan payments, creating a financial crisis for lenders.
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International spillovers of quantitative easing – Marcin Kolasa, Grzegorz Wesołowski
1 Mei

Several major central banks announced new rounds of massive asset purchases following the outbreak of the Covid-19 pandemic. This policy instrument seems to have performed well for economies that have been implementing it since the Global Crisis, but its spillover impact on external countries has remained a bone of contention within the policy debate. Using previous episodes of quantitative easing as a guideline, this column analyses its international spillovers, showing that they are qualitatively and quantitatively different from the impact of changing short-term rates by the major central banks.
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Fed Drastically Slashed Helicopter Money for Wall Street. QE Down 86% From Peak Week in March – Wolf Richter
30 april

Fed shed MBS. Loans to “SPVs” flat for fifth week. Repos in disuse. Fed still hasn’t bought junk bonds, stocks, or ETFs. But it sure sent Wall Street dreaming.
Total assets on the Fed’s balance sheet rose by only $83 billion during the week ending April 29, to $6.656 trillion. That $83 billion was the smallest weekly increase since this show started on March 15, and down by 86% from peak-bailout in the week ended March 25.
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6 Reasons Why This Is (Or Isn’t) The Worst Economy Since The Great Depression – Daniel Nivens
2 mei

When the NBER’s Business Cycle Dating Committee draws the boundaries on the current recession, it’s unlikely to stand out as an especially long one. In fact, by the time the committee publishes the official start date, it could be past its end date.
Why?
Because it’s front-loaded. Spending has dropped so sharply in such a large portion of the economy that many types of activity have nowhere to go but up. And once activity starts increasing, even from nothing, that’s expansion, not recession.
But the eventual business-cycle dates tell us little about our current situation. We could hit bottom in 2020 but then expand so weakly that we don’t restore vitality for several years. So let’s consider how the economy might unfold over a fixed horizon—say, three years from 2020 to 2022—rather than fixating on business-cycle dates.
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The economic risk from COVID-19 is not where COVID-19 is – Ilan Noy, Nguyen Doan, Benno Ferrarini, Donghyun Park
1 mei

The economic risk of an epidemic is distinct from its health risk. In the case of COVID-19, financial and institutional capacity are key determinants of an economy’s resilience to the shock. This column assesses the economic risks associated with the coronavirus pandemic across the world. The evidence shows that economic risks are especially high in Africa, Iran, South and Southeast Asia. Although healthcare systems are better equipped to handle the crisis than in previous pandemics, the globalisation of trade and labour flows will likely amplify the risks to the global economy.
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“Sell In May” Might Be A Good Risk Strategy This Year – Lance Roberts
2 mei

Could “Sell In May” be a good risk strategy this year? Maybe, considering we asked a simple question last week: “Is the bear market rally over?”
“That’s the question we have been discussing over the last few weeks. So far, most of it has played out much as expected by turning previous ‘selling panic’ into a ‘buying rush,’ and convincing a vast majority of investors the ‘bull market is back.’”
Just as we have seen in previous “bear market” bounces, the gains for April were quite stunning with stocks putting in the best one-month advance since 1974.
These exceedingly large bounces usually occur during bear markets. Unfortunately, in many cases, the majority of those big one-month advances are followed by negative returns.
Timing, as they say, is everything.
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Disclaimer: De VoL-redactie selecteert deze artikelen op interessante inzichten, of naar wij denken nuttige informatie. Wij kunnen echter geen enkele aansprakelijkheid aanvaarden voor de gevolgen van beslissingen die op grond hiervan door lezers zijn genomen, zakelijk zomin als privé.

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