Economische aanraders 13-08-2017
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.
The Rise of Zombie Companies — And Why It Matters – Daniel Lacalle
The Bank of International Settlements (BIS) has warned again of the collateral damages of extremely loose monetary policy. One of the biggest threats is the rise of “zombie companies.” Since the “recovery” started, zombie firms have increased from 7.5% to 10.5%. In Europe, Bof A estimates that about 9% of the largest companies could be categorized as “walking dead.”
What is a zombie company? It is — in the BIS definition — a listed firm, with ten years or more of existence, where the ratio of EBIT (earnings before interest and taxes) relative to interest expense is lower than one. In essence, a company that merely survives due to the constant refinancing of its debt and, despite re-structuring and low rates, is still unable to cover its interest expense with operating profits, let alone repay the principal.
What the Mainstream Doesn’t Get about Bitcoin – Charles Hugh Smith
The real demand for bitcoin will not be known until a global financial crisis guts confidence in central banks and politicized capital controls.
I’ve been writing about cryptocurrencies and bitcoin for many years. For example: Could Bitcoin Become a Global Reserve Currency? (November 7, 2013)
I am an interested observer, not an expert. As an observer, it seems to me that the mainstream–media, financial punditry, etc.–as a generality don’t really grasp the dynamics driving bitcoin and the other cryptocurrencies.
The portfolio rebalancing effects of the ECB’s asset purchase programme – Giovanna Bua, Peter Dunne
By the end of April 2017, the Eurosystem’s balance sheet contained €1.8 trillion of assets, mainly as a consequence of asset purchase programmes. This column analyses the portfolio rebalancing effects of the ECB’s programme. The original holders of the assets eligible for purchase by the ECB mainly purchased bonds of deposit-taking corporations outside the Eurozone. Investment funds and their investors did not rebalance significantly toward Eurozone equities or corporate bonds. While exchange rate and cost of capital effects are positive outcomes from the programme, local rebalancing effects appear to be non-existent.
***Stock Market Warning Siren is Blaring – Wolf Richter
Are we blinded yet by the brilliance of corporate earnings?
“Adjusted” earnings growth is 10.2% year-over-year in the second quarter, according to FactSet, based on the 91% of the companies in the S&P 500 that have reported results. The energy sector was a key driver, with 332% “adjusted” earnings growth from the oil-bust levels of a year ago.
The sectors with double-digit earnings growth: information technology (14.7%), utilities (10.8%), and financials (10.3%). The rest were single digit. Earnings in the consumer discretionary sector declined.
Revenues grew 5.1%, also led by the energy sector. At the beginning of Q2 last year, the WTI grade of crude oil traded at $35 a barrel. In Q2 this year, WTI ranged from $42 to $53 a barrel.
So the Wall-Street hype machine is cranking at maximum RPM to propagate the great news that earnings are soaring, and that this is the reason why stocks should also be soaring, and forget everything else. The hype machine carefully avoids showing the bigger picture which is dismal for earnings and ludicrous for stock valuations.
***What economists study: A guide for the curious – Christopher Snyder
With the press continuing to cast economics in a negative light, it is worth rethinking how our field is described to a lay audience. This column argues that even elementary principles can surprise non-economists with their power to explain a broader set of questions than most would think possible.
UBS Explains Why The Next Credit Unwind Will Be Unlike Anything We’ve Seen Before – Tyler Durden
Several weeks ago, Janet Yellen boldly declared “I don’t believe we will see another crisis in our lifetime.” For the rest of us who live in reality there is little doubt that the latest Fed-fueled credit bubble will eventually burst in epic fashion and once again lay waste to the personal balance sheets of millions of Americans. And while the timing of market collapses can never be predicted, UBS strategist Matthew Mish says there is one thing that is certain about the next credit unwind, it will be unlike anything we’ve seen before.
To summarize, Mish notes that unlike previous credit expansion cycles, this current one has been dominated not by traditional banks but rather by non-bank lending entities and government backed loans, especially in riskier subprime residential, auto and student loans. Moreover, unlike traditional lenders, Government debt tends to be much slower to react to things like rising delinquency rates…you know, because it’s just taxpayer money so who cares.
Central Banks Are Hiding the True Price of Risk – Thorsten Polleit
If you invest your money, you will have to deal with numerous risks. For instance, if you buy a bond, you run the risk of the borrower defaulting or being repaid with debased money. As a stock investor, you face the risk that the company’s business model will not live up to expectations, or that it, at the extreme, will go bankrupt. In an unhampered financial market, prices are formed for these and other risk factors.
Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout – Simon Black
A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money.
Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…
… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.
But that didn’t happen.
The story was hardly picked up.
Tyrants of the Mind and the New Collectivism – Richard M. Ebeling
The current counter-revolution against liberty is being fought on a number of fronts in American society. One is on the college and university campuses across the country, where the ideology of “political correctness” is strangling the principle and practice of freedom of speech and the ideal of intellectual controversy and debate.
Wall Street Firms Win Again, Regulators Capitulate – Wolf Richter
Financial Crisis is forgotten. Even sounds of gentle wrist-slapping fade.
Penalties imposed during the first half of 2017 on Wall Street firms by their regulators — the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), and the Financial Industry Regulatory Authority (Finra) — plunged 65% compared to the same period in 2016.
During the first half in 2016, $1.4 billion in fines were levied on Wall Street firms by the three regulators. In 2017, the total was down to $489 million, according to data collected by The Wall Street Journal.
Not All Capital Is Equal; Some Is Destructive – Charles Hugh Smith
Financialization incentivizes hot money capital flooding into speculative credit-asset bubbles.
When we speak of capital investments and capital flows, it’s presumed all the capital being referenced is equal: a dollar is a dollar, wherever and whenever it’s put to use.
But not all capital is equal, and that is one reason why the global financial system is far more fragile than the mainstream media lets on. Metrics such GDP (gross domestic product) don’t reflect the differences in the capital sloshing around the global economy.
In the “happy story” of classical capitalism, capital flows to productive investments: the construction of needed homes, assembly of new factories, etc.–activity that returns a profit to the owners of capital and generates value and employment by filling scarcities or by increasing productivity and thus wealth.
A Flat Tax Is Not More “Efficient” Than a Tax System with Loopholes – Per Bylund
A frequently repeated claim is that loopholes in the tax code are “inefficient.” A more efficient tax, economists say, is a flat and all-encompassing tax that is inescapable. Why? Because this means no one will waste resources on tax planning and thus tax avoidance. In other words, more resources will be used in production, which is better for the “economy.”
Leaving the moral and ethical argument about tax avoidance aside, the efficiency argument too is completely wrong. It shows how much economists have deviated from understanding what they supposedly try to learn about: the market.
How to Break Austerity-Induced Stagnation? – Jomo Kwame Sundaram, Anis Chowdhury & Yves Smith
Yves here. Possibly due to the fact that this article was originally published as an op-ed for a mainstream wire service, it does not acknowledge MMT-type ideas, most importantly that fiat currency issuers are constrained by resources (as in access to workers and resources), while currency users, like US state governments and countries in the Eurozone, do need to consider the possible negative effects of budget deficits.
Having said that, Sundaram correctly focuses on the fact that the barrier to good economic policies is dogged adherence to failed policies, due in no small measure to political leaders failing to challenge them. Notice that politicians who have been calling orthodox approaches failures, whether for well-thought out reasons (Sanders, Corbyn) or occasional astute observations mixed with cliches from all over the political map and a lot of word salad as binder (Trump) have disrupted overly-comfortable political arrangements. But as we’ve said repeatedly, the response has been to double down on failed strategies. Not a good look.
What kind of leadership does the world need now? US President Franklin Delano Roosevelt’s leadership was undoubtedly extraordinary. His New Deal flew in the face of the contemporary economic orthodoxy, begun even before Keynes’ General Theory was published in 1936.
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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