Economische aanraders 21-02-2016
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 zijn.
Sinds begin 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.
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Why the Chinese Yuan Will Lose 30% of its Value – Charles Hugh Smith
17 februari
The stark truth is nobody wants yuan any more.
The U.S. dollar (USD) has gained over 35% against major currencies since 2011.
China’s government has pegged its currency, the yuan (renminbi) to the USD for many years. Until mid-2005, the yuan was pegged at about 8.3 to the dollar. After numerous complaints that the yuan was being kept artificially low to boost Chinese exports to the U.S., the Chinese monetary authorities let the yuan appreciate from 8.3 to about 6.8 to the dollar in 2008.
This peg held steady until mid-2010, at which point the yuan slowly strengthened to 6 in early 2014. From that high point, the yuan has depreciated moderately to around 6.5 to the USD.
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“Markets Only Do This When Conditions Are Getting Worse” – Christine Hughes
20 februari
Since last Thursday’s intra-day low, the S&P rallied +6.6% in four days with the former laggards and most heavily shorted stocks leading the charge. This action is very typical of a bear market rally and should be viewed with skepticism. A great example of a laggard leading is Freeport McMoRan (FCX) which rallied +63% in four days before giving some back. Even with that huge surge, this stock is still down -66% the past year.
Given what was becoming a large short position in the market (see bottom of chart below), there has been what we call a “squaring of positions” the past week, driving global markets higher. Shorts have begun to cover which forces buyers into the market when they would really rather not be buyers.
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How to resolve a systemic sovereign debt crisis – Damiano Sandri
17 februari
How should the international community deal with the solvency crisis of a systemic country? This column argues that the presence of spillovers calls for reducing bail-ins, while requiring somewhat greater fiscal adjustment by the crisis country. To avoid excessive fiscal consolidation, the international community should also provide highly systemic countries with official transfers. To contain moral hazard, it is important to use transfers only when spillovers are particularly severe.
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Revolt against NIRP Breaks out, Bank of Japan “Baffled” – Wolf Richter
19 februari
This would be hilarious, if it weren’t so serious: Frazzled politicians, during a parliamentary session, lambasting the governor of their central bank over its new negative interest rate policy. But this is what happened in Japan.
Central-bank imposed negative interest rates have caused a lot of financial mayhem. Since they’ve contaminated much of Europe, they’ve dragged most major stock indices into a bear market. In the US, stocks fell hard as well. The Nasdaq sidled up to a bear market before bouncing off and is now down “only” 14% from its peak. The Russel 2000 is in a bear market, down 22.4%.
In Japan, stocks have gotten mauled
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*** The Saudi/Russia Oil Deal Is Worthless… Here’s Why – Matt Badiali
17 februari
Yesterday, a group of countries that include Saudi Arabia and Russia agreed in principle to freeze oil-production rates. On the surface, this sounds like a good thing. But it’s really just a bunch of bull. As regular Growth Stock Wire readers know, oil prices fell from more than $105 per barrel in mid-2014 to less than $30 per barrel today. That’s a 70%-plus fall in just 18 months. According to the U.S. Energy Information Administration (“EIA”), the world’s oil supply rose from 91 million barrels per day in 2013 to 96.3 million barrels per day in October 2015 (the latest data available). That’s a 6% increase in supply in just two years.
Meanwhile, demand isn’t increasing as fast as supply is. World oil demand was 91.2 million barrels per day in 2013. The latest EIA estimate puts it around 92.8 million barrels per day as of September 2015 – an increase of less than 2%.
That means the “surplus” oil (supply minus demand) went from about -200,000 barrels per day to 3.5 million barrels per day. That’s why oil prices collapsed.
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How to Reverse the Innovation Slowdown – Peter St. Onge
15 februari
Is innovation slowing? Will it stop? A new paper by one Jonathan Huebner in the awesomely-named journal Technological Forecasting & Social Change argues that innovation is slowing, indeed it’s halved in the past hundred years.
Because Huebner is a physicist, he naturally looks for abstract and generalizable reasons. These take him to dark places: he worries that technology has an “economic limit” or perhaps that our brains have a limit we’re bumping against. He concludes, “The rate of innovation reached a peak over a hundred years ago and is now in decline. This decline is most likely due to an economic limit of technology or a limit of the human brain that we are approaching.”
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*** Think Another Crash Is “Impossible”? Think Again – Charles Hugh Smith
19 februari
The confidence that risk can be quantified and mitigated is misplaced.
If there are limits on what we can know of the future–and clearly there are–this sets limits on our ability to quantify and mitigate risk. Longtime correspondent Lew G. submitted this thought-provoking riff on the system’s intrinsic capacity for cascading decisions (for example, selling everything not nailed down) that upend our understanding of risk.
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Why Negative Interest Rates Will Fail – Frank Hollenbeck
16 februari
It is now just a matter of time before the US central bank follows the central banks of Japan, the EU, Denmark, Sweden and Switzerland in setting negative rates on reserve deposits.
The goal of such rates is to force banks to lend their excess reserves. The assumption is that such lending will boost aggregate demand and help struggling economies recover. Using the same central bank logic as in 2008, the solution to a debt problem is to add on more debt. Yet, there is an old adage: you can bring a horse to water but you cannot make him drink! With the world economy sinking into recession, few banks have credit-worthy customers and many banks are having difficulties collecting on existing loans.
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Prior to the Global Crisis, banks could easily use off-balance sheet structures to lower their effective capitalisation rates. This column examines another way that US banks circumvented capital regulations – by maintaining minority-owned, non-consolidated subsidiaries. Had these subsidiaries been consolidated, average reported equity-to-assets ratios would have been 3.5% lower. These findings suggest that some US banks were actively misrepresenting the riskiness of their assets prior to the crisis.
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China’s Massive Debt Cram-Down – Christine Hughes
16 februari
Chinese banks aggressively expanded their balance sheets in January so much as to top all prior months of lending in history. Aggregate financing jumped to 3.42 trillion Yuan significantly beating expectations of 2.2 trillion yuan in a Bloomberg survey.
This massive debt cram-down shows China’s desperation to shore-up borrowing and spur economic growth. The surge in lending also coincides with very weak trade data for January which authorities were trying to offset (imports fell 14.4 % year-over year and exports fell 6.6% year-over year).
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I’m in Awe at Just How Fast Global Trade is Unraveling – Wolf Richter
15 februari
It simply doesn’t let up. Global trade is skidding south at a breath-taking speed. China produced a doozie:
The General Administration of Customs reported on Monday that in yuan terms, exports dropped 6.6% in January from a year ago while imports plunged 14.4%. In dollar terms, it was even worse due to the depreciation of the yuan since August: exports plunged 11.2% and imports 18.8%, far worse than economists had expected.
And so the trade surplus, powered by those plunging imports, jumped 12.2% to a record $63.3 billion.
This came on top of China’s deteriorating trade numbers last year, when exports had fallen 1.8% in yuan terms while imports had plunged 13.2%. Imports have now declined for 15 months in a row. That’s tough for the world economy.
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The evasive predictive ability of core inflation – Pablo Pincheira, Jorge Selaive, Jose Luis Nolazco
15 februari
One thing economists can agree on is that inflation is hard to forecast. This column argues that in this context, the idea that ‘core inflation’ may be a useful predictor is very appealing, especially for central banks that need to know where inflation is heading. Evaluating the ability of core to forecast headline inflation for OECD and some non-OECD countries, it seems that sizable predictability emerges for a very small subset of countries, but it is either subtle or undetectable for most other economies.
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Kashkari on TBTF – John Cochrane
19 februari
Neel Kashkari, the new president of the Minneapolis Fed, is making a splash with a speech about too big to fail, and the need for a deeper and more fundamental reform than Dodd Frank. I am delighted to hear a Federal Reserve official offering, in public, some of the kinds of thoughts that I and like-minded radicals have been offering for the last few years.
I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy.
Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all.
From an economic point of view, now is indeed the right time — calm before the storm. I’m not so sure now is a great time from a political view! But perhaps anti-Wall Street feelings from both parties can be harnessed to good use.
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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.