Economische aanraders 13-05-2018
Economische aanraders: Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 10 belangrijke of informatieve artikelen en interviews die 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.
Sinds december 2015 nemen we 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.
***As US Dollar & Interest Rates Rise, All Heck Breaks Loose in Emerging Market Currencies – Wolf Richter
When the “hot money” gets antsy, a currency crisis morphs into a debt crisis.
You just don’t lend Argentina’s government money. Not in its own currency, because it relentlessly destroys that currency, and not in a foreign currency, because it will default on it. Lending money to Argentina is like trying to run across a 16-lane freeway with traffic zooming by at 70 mph. You just don’t do it. You might get through it. But there’s a good chance it’s going to cost you, and perhaps dearly, and you shouldn’t be surprised if it does.
Making (some) sense of cryptocurrencies: When payments systems redefine money – Antonio Fatás, Beatrice Weder di Mauro
Economists have been dismissive of cryptocurrencies, but fintech entrepreneurs and enthusiasts continue to see their disruptive potential. This column considers the theoretical and practical arguments on both sides of the debate. Traditional currencies are overwhelmingly superior as forms of money, and cryptocurrencies’ advantage in terms of lax regulation is unlikely to last. There remains, however, ample potential for innovation in payment systems.
Economic Numbers Are Less Than Meet the Eye – Jim Rockards
Investors can be forgiven for thinking they hit the trifecta last Friday.
The U.S. Bureau of Labor Statistics reported that unemployment had dropped to 3.9%, the lowest in almost 20 years.
The Federal Reserve Bank of Atlanta reported that its widely followed GDP forecasting tool was showing projected growth for the second quarter of 2018 at 4%, exactly where Trump boosters like Larry Kudlow said it would be.
Finally, the Dow Jones industrial average rallied 332 points (1.39%), partly in response to the other good news. It was almost enough to make a trader sing, “Happy days are here again.”
The fact is that this good news hides more than it reveals. A look behind the numbers discloses a sobering outlook for investors.
A genie in a bottle: Inflation, globalisation, and competition – Dan Andrews, Peter Gal, William Witheridge
Low inflation at the same time as rising global competition has led to a debate on the importance of globalisation for domestic inflation. This column suggests that greater participation in global value chains has placed downward pressure on inflation. The current higher level of global value chain integration may also dampen inflation by accentuating the impact of global economic slack on domestic inflation. There is a risk that stalling globalisation since the crisis, coupled with stronger aggregate demand and declining market contestability, could lead to inflationary pressures in the medium term.
The Fed’s Treasury Holdings…Reviewing Operation Twist-Off – Chris Hamilton
According to the Federal Reserve, it began normalizing its balance sheet, comprised of mortgage backed securities and US Treasury debt, in late 2017. In particular, the Federal Reserve holdings of US Treasury’s have been reduced by nearly $70 billion since peak holdings. This is about a 2.7% reduction in the Fed’s Treasury holdings, so far. The Fed plans to continue rolling off Treasury holdings as they mature, at somewhere between $30 to $50 billion monthly, in a “data dependent” fashion likely until they halve their current holdings (give or take hundreds of billions).
But, the make-up of the maturity held by the Fed has really radically changed since Operation Twist ended, even before QE was finally tapered out in late 2014. The chart below shows the rise and maintenance of long bonds (over 10yrs), the rise and fall of middle duration (5 to 10yrs), especially the emergence of short durations (under 5yrs) and now the surging holdings of the shortest durations of under 1 year.
What do Retail Investors as a Whole Know that We as Individual Retail Investors Don’t Know? – Wolf Richter
This is a sight to behold. But I’m not sure what to make of it.
The TD Ameritrade’s Investor Movement Index (IMX) dropped another 8.2% in April, after having plunged 12% in March, 23% in February — the biggest month-over-month plunge in the history of the index — and 9% in January. The January plunge, the first in the series of four, occurred around the time of the final spurt of the stock-market rally that took the S&P 500 index to its still standing record close on January 26.
After climbing every month last year and forming a perfect spike, the index has now plunged every month so far this year, collapsing 44% from its peak in December. This – up on a steep escalator and down by express elevator – is an investing cliché that rarely turns into such a perfect and baffling chart. Note the historic range:
How Safe Are We? Our Blindness to Systemic Dangers – Charles Hugh Smith
How do we explain our obsession with relatively low risk dangers and our collective blindness to manufactured/marketed scourges that kill tens of thousands of people annually?
If you’ve bought a new vehicle recently, you may have noticed some “safety features” that strike many as Nanny State over-reach. You can’t change radio stations, for example, if the vehicle is in reverse. Who knows who or what you’ll run over in reverse if you were allowed to change radio stations while in reverse gear?
How many injuries can be traced to people changing radio stations while in reverse?
Credit-Driven Train Crash, Part 1 – John Mauldin
May 11, 2018
In last week’s letter, I mentioned an insightful comment my friend Peter Boockvar made at dinner in New York: “We now have credit cycles instead of economic cycles.” That one sentence provoked numerous phone calls and emails, all seeking elaboration. What did Peter mean by that statement?
I vividly remembered that quote because it resonated with me. I’ve been saying for some time that the next financial crisis will bring a major debt crisis. But as you’ll see today, it is a small part, maybe the opening event, of a rapidly-approaching train wreck. We’ll need several weeks to tease out all the causes and consequences, so this letter will be the first in a series. These will be some of the most important letters I’ve ever written. Something is on the tracks ahead and I don’t see how we’ll avoid hitting it. So, read these next few letters carefully.
Central Bankers Won’t Tolerate Deflation — No Matter the Cost – Alasdair Macleod
Naïve inflationism demands an increase in the quantity of money without suspecting that this will diminish the purchasing power of the money.” ~ Ludwig von Mises, The Theory of Money and Credit
It is hardly surprising that with equity indices stalling, the financial community is increasingly worried that the long, steady bull market is coming to an end. Naturally, this makes investors look for reasons to worry, and it turns out that there are indeed many things to worry about.
In fact, there are always things to worry about. Ever since the Lehman crisis, the Four Horsemen of the Apocalypse have been casting long shadows across the financial stage. But as financial assets have continued to rise in value over the last nine years, bearish fund managers, spooked by systemic risks of one sort or another and the perennial threat of a renewed slump, have been forced to discard their ursine views.
As Malls Melt Down, Industrial Properties Heat Up – Wolf Richter
This is the brick & mortar part of e-commerce.
Commercial real estate prices peaked in August 2017 at 27% above the crazy peak of the prior bubble, according to the Green Street Commercial Property Price Index (CPPI). By April this year, the index was down 1.4% from the peak and by about 1% from April a year ago.
***The EU’s Backdoor Path to a Unified Superstate – Philipp Bagus
For years there has been a struggle in the Eurozone between those that want to transform it into a transfer union and those that who want a Europe of independent and cooperating countries. The latter including Austria, Finland, the Netherlands and Germany want strict limits for deficits and debt brakes as envisioned in the Fiscal Stability Treaty. Some, such as the European Constitutional Group, even demand a mechanism for an orderly break-up of the Eurozone. The former including Mediterranean member states led by France, do not openly call their objective a fiscal union or the creation of a “European Super State” but prefer to talk about a “deepening of the European project.” The reason for this division is straightforward: The central and northern European countries would be the contributors to a transfer union while the club Med would be on the receiving side.
Risk reduction and risk sharing in EU fiscal policymaking: The role of better fiscal rules – Roel Beetsma, Martin Larch
The key question in the policy debate on the next steps for the Economic and Monetary Union seems to be whether we can progress with integration in a context where some countries perceive themselves as consistently paying for policy mistakes of others, while others see themselves victims of a moral diktat. This column, adding to VoxEU’s Euro Area Reform debate, argues that the policy dilemma around a central fiscal capacity can only be overcome if fiscal risk sharing and risk reduction advance in parallel. Therefore, reform of EU fiscal rules need to receive more attention.
Refocusing the debate on risk sharing under a European Deposit Insurance Scheme – Jacopo Carmassi, Johanne Evrard, Laura Parisi, Michael Wedow
Recent months have seen many proposals for alternative designs for a European Deposit Insurance Scheme that would cater for concerns that such a scheme would lead to some banking sectors having to bear the costs of bank failures in other member states. This column, adding to VoxEU’s Euro Area Reform debate, asks whether these concerns are well founded.
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