I am going to write mostly about the economic impact of the Covid-19 coronavirus outbreak today. But I have one or two other pieces to add here as well.The pre-coronavirus global economyI think we’re getting a better handle now on where we were before the novel coronavirus hit China. As I have bee…

Happy Valentine’s Day!Let me make this a quick post, spurred on by three things – one thing I heard in conversation I had, one thing I heard on the radio, and one thing I read on Twitter.Defining socialismWhen I write ‘socialism’, really I’m describing European-style social democracy more than so…

Two topics today: the US and the EU. Unlike Monday, when it was the politics in the EU and the economy in the US, this time, I want to talk about the politics in the US and the economy in the EU.European economic problemsI want to start off with a mea culpa of sorts. I believe that somewhere in th…

At first, I called this post “More on Quarles and the introduction of a standing repo facility”. But that’s not a sexy title is it? That’s because repo isn’t a sexy topic. I think it’s important though. If we have a liquidity crisis though, everyone will be talking about it – because that’s where the financial meltdown would occur.
And because repo rates spiked dramatically in September, there’s already a decent amount of buzz in financial circles about it. But repo is very much in the weeds. And so, it’s not ‘sexy’ like talking about a possible recession due to the coronavirus or a Tesla bubble popping.
I’m going to give it a go anyway. And I’m going to put it outside the paywall too! Consider this a follow-on to the section in yesterday’s post that talked about Federal Reserve

Today is a bit of a potpourri because I have three different unrelated topics to discuss and one review item. But I’ll make it (relatively) short. I have the most to say about Germany.Bullish on the US economyLet me start off with my ‘bullish’ economic commentary. For the past several months, I ha…

The latest jobs report confirms that, on the eve of the coronavirus outbreak, the US economy was healthy, and that there was little chance of a near-term recession. I would go so far as to say that, even with the coronavirus outbreak, the chances of a recession in the near-term are remote. This help…

One major headline today that you might have seen concerns politics in the German State of Thuringia. And that’s because German Chancellor Angela has publicly rebuked the leaders of her own party in that state for accepting support from the AfD (Alternative für Deutschland) party. I have seen negati…

Quick post hereWe got more ISM numbers from January today. And the figures were above expectations. ISM’s US Composite PMI came in at 53.3 vs the 53.1 that was forecast. And the Non-Manufacturing PMI from ISM came in at 55.5 vs 55.0 expected. Overall, I would agree with Neil Irwin that, with ISM, w…

The US economy has been growing for a record 129 months now. And the data that’s been coming out of the US recently indicate that’s unlikely to change anytime soon. Could the economic effects of the coronavirus outbreak upset this trend? Absolutely. However, the threat is much more about financial conditions and medium-term economic risk than anything regarding near-term recession in the US.
The Data
Before I get into the data, let me say that I am thinking of this in stock and flow terms. By that I mean that we have an existing data set that describes the US or global economy at any one time – the stock. And depending on what those data say about the economy, we are at a point that’s either vulnerable or largely impervious to incoming data and event risk. From what I can see,

In my last post, I told you "I think the coronavirus is a serious event risk. But I don’t think it is yet to the point where we have to worry about recession.” We’ve now had a few more days to consider what the coronavirus means to the global economy and how vulnerable the US is to a recession. And …

I am looking at the US yield curve as I write this note and I see the 10-year yield is just one-tenth of a basis point above the 3-month yield. And the curve is completely inverted from 6 months to 3 years. Should we be worried? The short answer is no. What follows below is the longer answer, in whi…

I woke up this morning to tweets from the amazing Lisa Abramowicz indicating a sizable move into risk-off territory for global markets on the back of coronavirus concerns. And because I talked about faulty market structure related to one of those tweets, I thought I’d riff on a framework that Eurasi…

In an interview with Ta-Neishi Coates, Alexandria Ocasio-Cortez tries to answer the recurrent question of ‘when is it just too much money?"
Here’s the clip. Watch the whole thing because I am going to comment on it.The AOC positionOcasio-Cortez’s position here is simple. I think of it like the 19…

Yesterday and today, there’s been a bit of back and forth on Twitter about vulnerabilities in the high yield space. I thought I would weigh in via this newsletter because I think it’s an important issue regarding faulty market structure.
For me, there’s a liquidity mismatch problem. And eventually,…

Despite my seemingly panglossian ‘cautiously optimistic’ post last week, I am still very much worried that we are hitting the end of this cycle. I’ll tell you why below. But, let me add just a few notes on style first! In keeping with ‘the Credit Writedowns style’ for 2020, this post will be brief. Also, it’s outside the paywall. Since I intend to write more, every fourth or fifth post is going outside the paywall. That way, people get a sense of what’s on offer.
Last ‘End of cycle or mid-cycle slowdown’ debate
Back in the Yellen Fed days in 2015, I was also concerned about end of cycle dynamics. Let me set the scene here. If you recall, we got the tapering of asset purchases and the so-called taper tantrum in 2013. So, the Fed was reluctant to start raising rates pretty

Quick note here
Did you know there was a peace negotiation surrounding Libya this past weekend? I certainly didn’t until I watched the German evening news. This negotiation is getting absolutely zero play in the media in both the UK and the US. That’s largely because the UK and the US aren’t even i…

Somewhere in the Credit Writedowns archive are comments regarding US President Trump to the effect that political economy shocks won’t matter. So I want to share a quick anecdote with you on why I have never put too much stock in the political economy as a crucial factor regarding market or economic…

I have been trying to write an all-encompassing post for the new year for two weeks now. But time has never allowed it. So I’ve decided to forego that and get something out to you on what I am thinking as 2020 begins.
First and foremost, let me say that I hope this post is emblematic of how 2020 wi…

Quick post outside the paywall here on some of the data coming out of the US recently
FedEx bellwether
I wanted to start with FedEx because it is often considered a bellwether of the US economy given its position at the center of shipping and delivery logistics. It released a disappointing earnings report on Tuesday:
FedEx said it now forecasts fiscal 2020 earnings of $9.10 to $10.35 a share, or $10.25 to $11.50 a share excluding expenses and aircraft impairment charges connected with the company’s 2016 acquisition of TNT Express. Neither estimates include year-end mark-to-market retirement plan accounting adjustments.
Analysts had forecast earnings of $12.09 a share, based on FedEx’s previous estimate of $11 to $13 a share.
A lot of this may just be about FedEx’s divorce from

Framing the populist revoltIn the industrialized Western world, we are living through a great age of populism. There’s no doubt about that now. The trigger for it was the Great Financial Crisis of 2007-2009 and the knock-on European Sovereign Debt Crisis a couple of years later. But, politically, w…

Labour shellacking and SNP dominationThe UK general election results are in. And, for me, the most striking feature of the outcome is the absolute thrashing the Labour Party received. With only 201 seats of 650 constituencies in parliament, a net loss of 57 MPs, it was even worse than the 209 tally…

I know it’s pure folly to predict what the Fed is likely to do on a FOMC meeting by meeting basis. But hear me out. Despite the fact that I see the Fed looking to remain as tight as they can reasonably be in order to save up firepower for when the economy really nosedives, I expect the Fed to offer …

The Washington Post has a post up today on how two housekeepers took on the president — and revealed that his company employed undocumented immigrants. I sent it to a friend. And the exchange we had about the article made me think a bit harder about the issue. So I wanted to run some of my thoughts …

Everybody’s talking about this video of G-7 leaders laughing at US President Donald Trump during the recent NATO summit. While most people are just giggling about it, I think it reflects a much deeper issue. Take a look.
[email protected], @EmmanuelMacron, @BorisJohnson and other VIPs shared a few wo…

There’s been a lot of economic data coming out of the US in recent days. None of it shows a clear indication that the economy has turned the corner. Some of the early data on housing was good. But, more recently, the numbers have been murky, particularly regarding credit markets.
None of this says …

ImpeachmentIn the last couple of weeks, at the expense of other thoughts, I have been consumed by the impeachment proceedings going on in the United States. I guess this is a byproduct of my having been born in, growing up in and now living in the DC area.
But it is also a byproduct of my having j…

I think it’s a good time to outline where we are in this business cycle right now because a number of factors are coming together to present a larger picture in the US both in terms of growth and the policy response to that growth.The FedI want to start with the view I expressed in my last post, t…

It’s been a while since I had a public post on Credit Writedowns. So I thought now would be a good time to post given Wednesday’s Fed rate decision and presser and today’s jobs report. I think this one-two punch is a big deal. And that’s because it forces the market back to a focus on the Fed’s tightening bias from its focus on weak data forcing the Federal Reserve to cut. Thoughts below
The narrative
Before I get to the data, let me spell out how to think about the market and the economy right now.
Nothing in the data now or in the recent past speaks to an economic recession. We’re in the longest expansion in US history. And given we had both an enormous global financial crisis and a European sovereign debt crisis during this expansion, it makes sense that people point to signs

I want to tie a number of economic and political topics together today as a way of thinking about what the next 18 months in the US will mean. And a lot of it starts with the US domestic economy.Recession watchOver the past several years, I have been pretty bullish on the US economy. And I have co…

The Fed’s discomfortFor the better part of 4 years, I have been telling you that the Federal Reserve has been uncomfortable with a mid-cycle role which required it to keep rates at zero percent. The Fed sees its role as principally reserved for cycle turns and not as an agent of mid-cycle stimulus. …