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Economische aanraders 14-07-2019

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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Markets are Cheering Christine Lagarde’s Appointment to the ECB. Here’s Why That’s Trouble. – Daniel Lacalle
12 juli

The appointment of Christine Lagarde as president of the ECB has been greeted with euphoria by financial markets. That reaction in itself should be a warning signal. When risky assets soar in the middle of a huge bubble due to a central bank appointment, the supervising entity should be concerned.
Lagarde is a lawyer, not an economist, and a great professional, but the market probably interprets correctly that the European Central Bank will become even more dovish. Lagarde, for example, is a strong advocate of negative rates.
Lagarde and Vice President De Guindos have warned of the need to carry out measures to avoid a possible financial crisis, proposing different mechanisms to mitigate the shocks created by excess risk. Both are right, but that search for mechanisms to work as shock buffers runs the risk of being sterile when it is the monetary policy that encourages excess. When the central bank solves a financial crisis by absorbing the excess risk that the market once took it does not reduce it, it only disguises it.
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Common transport infrastructure: Welfare effects of the Belt and Road Initiative – Francois de Soyres, Alen Mulabdic, Michele Ruta
12 juli

Common transport infrastructure can improve welfare for participating countries, but they are costly undertakings with potentially asymmetric effects on trade and income of individual countries. This column uses new data on China’s Belt and Road transport projects to quantify the economic impact of the initiative. Welfare in participating countries could increase by 2.8% if all projects are implemented, but some countries have a negative welfare effect because of the high cost of the infrastructure.
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Ignore the Fear Mongering, Here’s What Climate Change Models Actually Say – Robert P. Murphy
10 juli

An Earth scientist’s recent article making the rounds on social media highlights a terrifying conversation he had with “a very senior member” of the IPCC, which is the UN’s body devoted to studying climate science. The upshot of their conversation was that millions of people will die from climate change, a conclusion that leads the author to lament that humans have created a consumption-driven civilization that is “hell bent on destroying itself.”
As with most such alarmist rhetoric, there is little to document these sweeping claims—even if we restrict ourselves to “official” sources of information, including the IPCC reports themselves. The historical record does not justify panic, but instead should lead us to expect continued progress for humanity, so long as the normal operation of voluntary market interactions continues without significant political interference to sabotage it.
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What My Fancy-Schmancy “Fed Hawk-o-Meter” Says About the Fed’s Next Rate Move
– Wolf Richter
10 juli

Folks lining up on both sides of the fence.
My Fed Hawk-o-Meter, applying its analytical magic to the just released minutes of the June 18-19 FOMC meeting, dipped by one point to 20, hovering now in the lower range of the red-line zone, indicating that a rate cut is moving closer as a possibility but is not yet a clear decision:
My fancy-schmancy Fed Hawk-o-Meter analyzes the minutes of the Fed’s meetings for tell-tale signs that the Fed sees the economy as very strong or overheating (rate hike); as strong but not overheating (rate unchanged); or as spiraling down (rate cut).
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Barclays Was Right: It Is A Melt-Up; And This Is How BofA Expects It Will End – Tyler Durden
12 juli

Three months after Blackrock CEO Larry Fink said on CNBC that “we have a risk of a melt-up… Despite where the markets are in equities, we have not seen money being put to work,” Barclays went so far as to make Fink’s prediction its base case, and last Wednesday the bank’s equity strategist Maneesh Deshpande said that a market melt-up scenario was now his “base case”, explaining that “after the truce in the U.S.-China Trade War post the G20 meeting in Osaka, the “melt-up” scenario we had outlined previously is now our highest probability outcome, leading us to update our 2019 S&P 500 price target to 3000.”
Predatory “Green Capitalism” Is Monetizing the Air, and It’s Going to Cost You – Charles Hugh Smith
10 Juli

You want to reduce CO2? Then trigger a global depression that reduces global consumption of everything by 50% and destroys 95% of the phantom wealth owned by the global elites trying to monetize the air.
I recently asked What’s Left to Monetize?, and longtime correspondent Mark G. provided the answer: the air we breathe, via carbon taxes and markets for trading carbon credits, i.e. financializing / monetizing Nature to benefit the few at the expense pf the many.
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Automatic stabilisers in banking capital – Charles Goodhart, Dirk Schoenmaker
11 juli

While banking is procyclical, the capital framework is largely static. The countercyclical capital buffer is discretionary, with potential danger of inaction, and is also limited in scale. This column proposes an expanded capital conservation buffer, which would act as an automatic stabiliser. This could incorporated in the next Basel review and the upcoming Solvency II review.
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When Will the Stock Market Respond to 2016’s Liquidity Collapse? – Frank Shostak
8 juli

After closing at 735 in February 2009 the S&P500 has been following a relentless up-trend closing at the end of June this year at 2941.76 – an increase of 300% since February 2009.
The increase in the US stock market this year appears to defy the visible softening in the momentum of various economic data. For instance, there has been a deterioration in the annual growth rate of industrial production and a slowdown in the yearly growth of personal income (see chart).
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A Third Of All European IG Bonds Have Negative Yields – Tyler Durden
13 juli

With much fanfare, and an astronomical (literally) dose of clickbait, Bloomberg leads off today with an article about “The Black Hole Engulfing the World’s Bond Markets”…
… which beyond the tantalizing headline says little that has not been already covered for years before, as well as recently, namely the $13+ trillion in negative yielding government bonds thanks to catastrophic central bank policies.
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In Escalation of Trade War With Switzerland, EU Risks Balkanizing Europe’s Financial Markets – Nick Corbishley
10 juli

In recent days, the stock exchanges of Switzerland, the fourth-largest European market by value-traded, were dealt what seemed at first like a hammer blow: Brussels stripped them of financial equivalence with the European Union after a previous trade agreement between the two sides expired, with the result that traders from the EU’s 28 member states are no longer allowed to trade shares in Swiss companies if those shares are also traded in the EU.
That applies to virtually all heavyweight Swiss companies such as Nestlé, Roche and Novartis, whose shares are included in the portfolio of just about every major European investor.
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*** Retail Apocalypse: 12,000 Stores Are Forecasted To Close This Year – Tyler Durden
13 juli

As the economy cycles down through summer, there is new, alarming data that shows retail store closings are accelerating.
Coresight Research says there have already been 20% more store closings announced in the first six months of 2019 than in all of 2018.
The research firm examined figures and retailers’ earnings reports, found that more than 7,000 are expected to close this year with many locations already shut down.
How Carbon38 Is Building the Threads of Female Empowerment
Bankrupted Payless ShoeSource closed its remaining stores last week, accounts for 37% of the closing this year.
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Deneen’s Why Liberalism Failed Attacks a Fake Version of Liberalism – Allen Mendenhall
13 juli

[Patrick J. Deneen. Why Liberalism Failed. New Haven and London: Yale University Press, 2018. 225 pgs.]
Only the bold would title a book Why Liberalism Failed. Patrick Deneen, the David A. Potenziani Memorial Associate Professor of Political Science at the University of Notre Dame, has done just that, proposing that such failure has actually occurred and setting the unreasonable expectation that he can explain it. His operative premise is that liberalism so called created the conditions for its inevitable demise—that it is a self-consuming, self-defeating ideology only around 500 years old. (p. 1) “Liberalism has failed,” he declares triumphantly, “not because it fell short, but because it was true to itself. It has failed because it has succeeded.” (p.3)
Deneen doesn’t define the term liberalism, which isn’t in his index even though it’s littered throughout the book. I have it on reliable authority that one of the peer reviewers of the pre-published manuscript recommended publication to the editors at Yale University Press, provided that Deneen cogently defined liberalism and then cleaned up his sloppy references to it. Deneen ignored this advice, leaving the manuscript as is. His genealogy of liberalism is all the more problematic in light of this refusal to clarify.
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***Free Trade, Not Foreign Aid, Will Reduce the Incentive to Flee Central America – Ryan McMaken
11 juli

Former Secretary of State George Schultz has an idea for dealing with increased immigration from the Northern Triangle region of Central America, which includes of El Salvador, Guatemala and Honduras: he wants to spend more money on foreign aid.
In yesterday’s Wall Street Journal, Schultz writes that the countries of the Northern Triangle could “increase the ‘supply’ of good governance by us[ing] foreign aid to fund better policing, transparency and higher-quality services—and apply international pressure to root out corruption and encourage political reform.”
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“There’s No Escape”: One Japanese Bank Owns Over Half A Trillion Dollars In US Bonds – Tyler Durden
12 juli

What do you do if you are a major Japanese investor, whose mandate is to invest in safe assets, yet the yield on Japanese govvies is too low to cover the cost of your liabilities?
That’s the question that Japan Post Bank Co., the banking unit of Japan Post Holdings, has been grappling with. Its answer: buy and hold over half a trillion dollars, or $577 billion to be precise, worth of foreign corporate bonds. That, as Bloomberg notes, is “more than the investment-grade portfolio at Fidelity Investments or the fixed-income holdings at Britain’s Standard Life Aberdeen Plc.” And since Japan Post is a public company, majority-owned by the government, it means that one Japanese bank (really, Japan, due to its state-ownership) is directly funding countless US-based corporations, resulting in hundreds of billions in stock buybacks , and this bank is also indirectly funding the hiring of thousands of US workers. In this “new normal” era of super low rates, this represents a major change from just a decade ago, when the foreign bond portfolio at Japan Post Bank was virtually nil.
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Comparing shipping costs and industrial production as measures of world economic activity – James Hamilton
8 juli

Shipping costs offer a potentially attractive measure of world real economic activity. However, the popular approach of removing a deterministic trend is not consistent with the observed behaviour of shipping costs and results in an unrealistic measure in data since 2015. This column compares alternative monthly measures based on shipping costs with direct estimates of world industrial production in terms of coherence with world GDP and usefulness for forecasting commodity prices, and concludes that industrial production is a much better measure. If shipping costs are to be used, the cyclical component should not be calculated using residuals from a linear trend.
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Liquidity Crisis at Woodford Equity Fund Is Symptomatic of Systemic Problem, Bank of England Warns – Nick Corbishley
12 juli

The Bank of England warned on Thursday that “financial stability risks are increasing” from giant open-ended funds, which are estimated to hold some $30 trillion in assets globally. These funds are vast sources of financing for the real economy but can pose a systemic risk since the money often goes into assets that are hard to sell quickly, the central bank said in its latest Financial Stability Report.
If investors in an open-ended fund decide to pull their money en masse, which they’re ostensibly allowed to do at just about any time, the fund could struggle to liquidate its assets in time, especially if those assets are not very liquid.
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Assessing the preferences in preferential trade – Alvaro Espitia, Aaditya Mattoo, Mondher Mimouni, Xavier Pichot, Nadia Rocha
10 juli

Preferential trade agreements cover more than half of world trade. This column argues that while the 280 preferential trade agreements in existence have substantially widened the scope of free trade and reduced average applied tariffs, they have struggled against traditional bastions of protection in poorer countries and have not been able to eliminate the high levels of protection for a handful of sensitive products. While preference margins offered to partners in such agreements seem large, their significance shrinks when competition from both preferential and non-preferential sources is considered.——————————————————————————————————

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