Economische aanraders 11-12-2016
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.
***If Everything is so Bullish, Why Are Bank Insiders Dumping Their Shares at Record Pace? – Wolf Richter
The Big Bullish signal with a capital B – for those who believe in this kind of religion – was that the Dow Jones Transportation Average jumped to a new high on Wednesday for the first time since 2014, and that it rose again on Thursday to another record, even as the Dow also hit new records. The theory goes that transportation stocks predict the broader market in some manner.
There were other bullish signals. Everyone is finding them suddenly everywhere. The hopes are flying high that whatever Trump is going to do – from instigating trade wars to letting Goldman Sachs run the Trump administration – it’s suddenly all good for stocks.
The next crisis? – John H Cochrane
Where will the next crisis come from? Every crisis starts with a pile of debt that can’t be paid back, and shady accounting to hide that debt. When one big one goes under, everybody starts to question the shady deals they’ve invested in, the extend-and-pretend game ends, heretofore simple rolling over of short term debt suddenly ends, and the run starts. Governments bail out. Really big crises happen when governments run out of bailout power or will and you have a sovereign debt crisis or inflation. Governments bail out by borrowing, but if people won’t lend the government money to bail out, either default or inflation must follow. Reinhart and Rogoff describe a frequent “quiet period” between financial crisis and sovereign crisis. So far we have just had quiet.
So, where around the world is there a lot of debt that might not be paid back and really shady accounting? Well, duh, China, right?
A Rising Stock Market Does Not Signal Economic Health – Steve Horowitz
The headlines tell us that the Dow Jones is up around 1,000 points since Donald Trump won the election on November 8th. The conventional wisdom is that this shows how much confidence people have in Trump’s ability to generate a healthy American economy. The argument is that if people are willing to buy stock in American firms, this indicates their belief that those firms will see improving profits over the next few years. They then draw the conclusion that more profitable firms indicate a healthier American economy.
Things are not good or bad for the economy. They are good or bad for people.
Although this argument is correct about stock prices reflecting an increasing belief in the profitability of US firms, it makes a major error in assuming that profitable firms necessarily mean a better economy.
Top Hedge Funds Predict How It All Will End – Tyler Durden
In early 2009, roughly at the time when this blog was launched which coincided with the start of the greatest monetary experiment of all time, we warned that there are two ways it will end: either in hyperinflation, or a deflationary supernova, the failure of currency and, eventually, barter. Now, almost 8 years later, some of the world’s top hedge funds are in agreement, and they are worried.
As the WSJ reports, these prominent hedge fund managers join an increasingly bigger and louder chorus which says central bank bond buying programs that are pumping trillions of dollars into global markets will end badly.
In yesterday’s main event, the ECB said it would extend its asset purchase program to the end of next year, buying bonds at a reduced rate. As the following chart from BBG projects, at the ECB’s revised rate of bond purchases, its balance sheet will soon surpass that of the Fed.
So what happens next? Prominent managers have told The Wall Street Journal in recent interviews of their doubts about the endgame for quantitative easing around the world.
Inflation Is Not About Price Increases – Frank Shostak
There is almost complete unanimity among economists and various commentators that inflation is about general increases in the prices of goods and services. From this it is established that anything that contributes to price increases sets in motion inflation.
A fall in unemployment or a rise in economic activity is seen as a potential inflationary trigger. Some other triggers, such as rises in commodity prices or workers’ wages, are also regarded as potential threats.
If inflation is just a general rise in prices as the popular thinking has it, then why is it regarded as bad news? What kind of damage does it do?
When behavioural economics meets randomised control trials: Examples from Canadian public policy – Robert French, Philip Oreopoulos
Behavioural economics has been playing an increasingly important role in public policy the world over, and Canada is no exception. This column outlines the steps Canada is taking towards incorporating insights from the literature into its policies. It also highlights the emphasis that many agencies in Canada are placing on testing their prospective behavioural interventions through randomised control trials.
Foreclosure Crisis Comes Full Circle? Biggest Buy-to-Rent Landlord Plans IPO (Despite Red Ink Everywhere) – Wolf Richter
In the Fed-engineered asset price inflation since the Financial Crisis, the value of the US housing stock has ballooned to $35 trillion, as large private equity firms have muscled into the single-family housing market, long the domain of mom-and-pop investors. They have acquired about 160,000 single-family houses out of foreclosure for least $32 billion. In the process, the homeownership rate has dropped to the lowest since 1965. And now comes the time to sell it to the public.
The largest player in the field, Blackstone’s Invitation Homes, which spent about $10 billion since the Financial Crisis, or about $150 million a week during the heyday, on about 50,000 homes in 14 metropolitan areas, has confidentially filed for an IPO, according to The Wall Street Journal. But it will face some, let’s say, challenges.
Moving Backwards: Despite Claims of A Recovery, “Economy Is In Reverse” – Mac Slavo
There just isn’t a lot of good news here.
The middle class is still struggling for something tangible, but things remain pretty frustrating for most people.
It could actually feel like things are going in reverse… and that each piece of economic interaction squeezes just a little bit harder.
via the Washington Examiner:
A new report on the economy finds that productivity growth is at a 50-year low and that much of the positive talk about the nation’s financial situation in the last election, much of it coming from the administration, was a lie.
The report from the U.S. Council on Competitiveness and Gallup finds that for many, the economy is in reverse despite claims that there is an active recovery ongoing, complete with new jobs.
The report makes clear that Obama Administration propaganda and media claims that a recovery is underway were carefully-coordinated lies… quite simply, there is no recovery and things are getting worse all the time for America’s swelling numbers of working poor:
Eurozone Crisis Was Caused More By Reckless Lending Than By Reckless Spending – Arturo O’Connell
Remedies have failed to produced growth and reduce indebtedness because they’re focused on protecting toxic behavior by banks in Europe’s core countries
Most discussion of the Eurozone crisis has revolved around the alleged profligacy of the heavily indebted “peripheral” countries. In fact, however, the desperate position of these countries mainly results from reckless lending by banks located in the “center” countries. As such, the crisis is just one more case of the well-known financial cycle that, in an era of financial deregulation, arises from cross-border financial flows dominated by “push” factors, i.e., by circumstances in the economic and financial systems of those center countries. Lending is always nothing more than the provision of purchasing power, and in the case of the southern European periphery was mainly funded outside the euro area. In this specific instance, therefore, it is patently clear — beyond conceptual considerations — that contrary to the narrative of northern European political debate, southern Europe’s debt hardly represented a transfer of savings from the Eurozone’s more advanced nations to its periphery.
Taxation Isn’t Only Theft, It’s Destruction – Michael S. Rozeff
Where the state is, there is the power to tax; for rulers cannot rule without taxation. As Ludwig von Mises wrote: “The funds that a government spends for whatever purposes are levied by taxation.” Or as Murray Rothbard put it: “All state actions rest on the fundamental binary intervention of taxes.”
Where the state is, there also is the growth of the state. Why does a state’s scope enlarge? One theory is that interest groups seek to use the state’s taxing power for their own benefit. I would like to suggest a complementary theory. When the power to tax is conferred upon rulers, many harmful incentives necessarily are conveyed with it. These encourage the rulers to expand their destructive acts.
A Disintegrative Winter: The Debt and Anti-Status Quo Super-Cycle Has Turned – Charles Hugh Smith
With this list of manifestations in hand, we can practically write the headlines for 2017-2025 in advance.
How would you describe the social mood of the nation and world? Would anti-Establishment, anti-status quo, and anti-globalization be a good start? How about choking on fast-rising debt? Would stagnant growth, stagnant wages be a fair description? Or how about rising wealth/income inequality? Wouldn’t rising disunity and political polarization be accurate?
These are all characteristics of the long-wave social-economic cycle that is entering the disintegrative (winter) phase. Souring social mood, loss of purchasing power, stagnating wages, rising inequality, devaluing currencies, rising debt, political polarization and elite disunity are all manifestations of this phase.
***The fatal flaw in macropru: It ignores political risk – Jon Danielsson, Robert Macrae
Political risk is a major cause of systemic financial risk. This column argues that both the integrity and the legitimacy of macroprudential policy, or ‘macropru’, depends on political risk being included with other risk factors. Yet it is usually excluded from macropru, and that could be a fatal flaw.
Will Europe’s Labor Laws Kill the Gig Economy? – Ferghane Azihari
The new gig-economy seems to struggle with the ancien world’s regulations. Uber lost a first judicial battle in the United Kingdom. The California-based firm has been ordered to change the legal nature of its relationships with its drivers who claim the right to be considered as workers rather than independent contractors.
This new legal definition is not harmless. If this decision is confirmed on appeal, it would lead Uber’s relations with its drivers to be settled according to British labor law rather than ordinary law. Labor law would imply the duty to implement the minimum wage, holiday pay regulations, and other kinds of special rules. It would therefore increase transaction costs on the market. Uber’s business model would be undermined.
If you really want to go – Germany and Brexit – Beatrice Weder di Mauro
A recent Vox eBook examined the the potential issues facing various EU members when it comes to negotiating with the UK over Brexit. This column, taken from the eBook, focuses on Germany and argues that as the country’s prosperity is inseparable from the success of Europe and the Eurozone, Germany’s priority has to be to preserve both and to avoid corrosive, possibly divisive or even destructive compromises with a country that wants to leave.
***U.S. Shale Set To Kill Oil Price Rally – Nick Cunningham
The resurgence of U.S. shale will undermine the OPEC-fueled price rally, capping oil prices at roughly $50 per barrel through 2017. That is the conclusion from the EIA’s latest Short-Term Energy Outlook, which forecasts WTI to average $50.66 per barrel and Brent to average just $51.66 per barrel next year.
The agency also cast doubt on OPEC’s ability to follow through on its deal. “The extent to which the announced plans will be carried out and actually reduce supply below levels that would have occurred in their absence remains uncertain.” But even if they do, any price rally above $50 per barrel will merely spark a revival in U.S. shale drilling, which will “encourage a return to supply growth in U.S. tight oil more quickly than currently expected.” In other words, the OPEC deal won’t fuel the sustained rally that oil bulls have hoped for.
The Bank of Japan at the policy frontier – Stephen Cecchetti, Kim Schoenholtz
The Bank of Japan has recently implemented one of the largest central bank policy shifts in modern times, raising its inflation target explicitly to 2% and kicking off the most rapid balance sheet expansion among the leading central banks. This column assesses this policy decision and its potential pitfalls, and compares it to similar policies enacted in the past. Unless policy has a significantly larger impact on financial conditions going forward than it has to date, the revised framework will likely be insufficient to achieve the Bank’s inflation target any time soon.
Is the U.S. Workforce Nearing Full Recovery? Don’t Trust the Unemployment Rate for the Answer! – Doug Short
We’ve updated our monthly workforce analysis to include last week’s Employment Report for November. The unemployment rate beat expectations by dropping from 4.9% to 4.6%, and the number of new nonfarm jobs (a relatively volatile number subject to extensive revisions) was above forecast at 178K.
A decline in the unemployment rate is a good thing, right? Not in the November employment report.
The Shrinking Unemployment Rate
The closely watched headline unemployment rate is a calculation of the percentage of the Civilian Labor Force, age 16 and older, that is currently unemployed. Let’s put this metric into its historical context. The first chart below illustrates this monthly data point since 1990.
In the latest data this indicator dropped to 4.6%. The age 16+ population grew by 219 thousand, but the labor force (the employed and unemployed actively seeking employment) more than offset that growth with a shrinkage of 226 thousand. The the number of employed grew by 160 thousand while 387 thousand unemployed vanished. How can that be? Obviously, the lion’s share of the unemployed didn’t join the ranks of the employed. They simply disappeared from the labor force.
Our “Gaslight” Financial System – Charles Hugh Smith
Perhaps the ultimate gaslighting in human history is our current fiat money creation system that benefits the few at the expense of the many.
The terms gaslight and gaslighting are entering the political media lexicon, with partisans of both parties accusing the other side’s candidate of gaslighting in the presidential election. The terms refers to the 1944 film Gaslight in which Charles Boyer subtly manipulates the environment to cause Ingrid Bergman to question her memory and sanity.
Generally speaking, gaslighting has been used in the context of personal relationships to describe a manipulative person’s attempts to undermine and control their romantic partner.
As I understand it, gaslighting refers to a specific set of manipulative techniques:
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 hierva door lezers zijn genomen, zakelijk zomin als privé.