Tag Archives: Economics

10 Charts on Emerging Market Corporate Debt

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“Corporate debt levels in emerging markets are spooking both economists and investors. Not that this debt burden came out of nowhere, of course. But, admittedly, there are a couple of catalysts to explain why the EM debt pile is causing some headaches just now. First, the growth of emerging corporate debt is accelerating, and, second, the massive depreciation of EM currencies is exaggerating elevated debt levels. This blog contains 10 (familiar) graphs (taken from familiar institutions like BIS and IMF) to portray these trends.”

http://jeroenbloklandblog.com/2015/10/14/10-charts-on-emerging-market-corporate-debt/

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Obamacare architect: High-deductible plans overdone

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“One of the chief architects of the president’s health law said Friday the plans offered on government-run exchanges need to be more affordable in order to boost participation rates. High-deductible plans are part of the problem, Dr. Ezekiel Emanuel added. ‘We’ve overplayed the high-deductible plans. People are feeling this is less and less insurance. And just more and more, ‘I’m paying out of my pocket.” According to the government, the penalties for not getting health insurance are going up substantially in 2016.  The penalty is calculated as a percentage of taxable household income or per person, whichever is higher.”

http://www.cnbc.com/2015/11/20/obamacare-architect-high-deductible-plans-overdone.html

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Households lost from quantitative easing; gov’ts, big business won [2013]

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“The big winners, to the tune of $1.6 trillion by the end of 2012, were the governments of the US, the UK and eurozone, from the reduced costs of servicing their debts and from the increased profits made by the their respective central banks (who magically create money to buy government debts which pay them interest).  McKinsey believes that households have been significant losers from cheap money. How much have they lost? Well McKinsey says that from 2007 to 2012, the cumulative net loss of interest income for American households was $360bn, compared with a cumulative net loss of $160bn for eurozone citizens and $110bn (£70bn) for British people.”

http://www.bbc.com/news/business-24939396

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‘Big Short’ Genius Thinks Another Financial Crisis Is Looming

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“Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.”

http://nymag.com/daily/intelligencer/2015/12/big-short-genius-says-another-crisis-is-coming.html

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Puerto Rico Defaults On Bonds: Return Does Not Come Without Risk

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“Many American investors bought Puerto Rican bonds over the past five years as we all searched desperately for yield in the face of the Federal Reserve pushing interest rates down to historic lows. Normally, investors understand that higher yields come with greater risks. However, during the past six years of extraordinary interventions by the Fed into all sorts of financial markets, many investors may have decided that those higher yield investments weren’t really all that risky.  Puerto Rico’s problems may serve as a much-needed wake up call to investors. As rates rise, capital will move back toward safety and the risk premium demanded of higher risk projects is likely to increase.”

http://www.forbes.com/sites/jeffreydorfman/2016/01/04/puerto-rico-bond-defaults-early-reminder-to-investors-return-does-not-come-without-risk/

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Bahamas’ new 15% VAT ‘a recipe for recession’: economist [2013]

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“The Government is proposing to implement VAT on July 1, 2014, at a rate of 15 per cent, with the hotel industry to be subject to a lower 10 per cent rate.  Sir William called on the government to clarify whether or not it intended to reduce current taxes to make room in the economy for VAT, adding that whether or not officials could strike a balance between existing taxes and the new structure would ultimately determine the strategy’s success.  ‘The public is not expecting to pay the same level of custom’s duties along with everything. If that is so, there is gonna be hell to pay in this economy.'”

http://www.tribune242.com/news/2013/oct/04/vat-move-recipe-recession/

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John Hussman: Reversing the Speculative Effect of QE Overnight

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“Last week, without taking any care to reduce the size of its balance sheet, the Federal Reserve instantly changed the monetary environment to one that is observationally equivalent to the one that prevailed in 2009. By raising interest rates artificially (through interest payments on reserves and reverse repurchases) and applying those payments to everything but currency in circulation, the Fed has neutralized the misguided speculative prop it created through 6 years of policy distortion, and it did so in one fell swoop. From the standpoint of investors, the overall effect is just as if the Fed had suddenly reversed every dollar of quantitative easing since 2009 ($1.7 trillion).”

http://www.hussmanfunds.com/wmc/wmc151221.htm

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Corporate America’s buyback binge feeds investors, starves innovation

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“The phenomenon is the result of several converging forces: pressure from activist shareholders; executive compensation programs that tie pay to per-share earnings and share prices that buybacks can boost; increased global competition; and fear of making long-term bets on products and services that may not pay off.  Companies say buybacks are warranted when demand for their products and services isn’t enough to justify spending on R&D, or when they deem their shares to be undervalued, and therefore a better investment than new projects.  But if those buybacks come at the expense of innovation, short-term gains in shareholder wealth could harm long-term competitiveness.”

http://www.reuters.com/investigates/special-report/usa-buybacks-cannibalized/

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Dodd-Frank Creates a Liquidity Crunch for Bonds

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“While each individual institution is undoubtedly safer due to capital constraints imposed by Dodd-Frank, this makes for a more illiquid market overall. The lack of liquidity will be especially potent in the bond market, where all securities are not mark-to-market and many bonds lack a constant supply of buyers and sellers.  The bond market is much larger than the equity market, and a 30-year bond bull run has many investors and institutions heavily invested in the asset class. Furthermore, studies have shown bond investors to be more sensitive to poor performance since the asset class is usually perceived as having lower risk than equities.”

http://www.investopedia.com/articles/investing/072915/doddfrank-creates-liquidity-crunch-bonds.asp

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Ben Bernanke Was Incredibly, Uncannily Wrong [2009]

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“We now have the diametrical opposite of the famous ‘Peter Schiff Was Right‘ video (a compilation of 2006 and 2007 clips in which Schiff, a financial expert who subscribes to Austrian economics, predicted the deep recession that would follow the bursting of the housing bubble).  The new, opposite video is a compilation of the 2005–2007 prognostications of Federal Reserve Chairman Ben Bernanke. In it, Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right.  Could their differences in economic understanding have anything to do with this remarkable dichotomy?”

https://mises.org/library/ben-bernanke-was-incredibly-uncannily-wrong

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