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By Bilal Hafeez 15-10-2019
In: post | Newsletter

Macro Hive Podcast Playlist: QE Won’t Help US / UK’s Exodus / Missing Climate Investment

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We’ve recently featured a report on whether the US is following the path of Japan – it had an optimistic view. But this week, we have a podcast with Nomura’s Richard Koo who argues the more pessimistic case. For him, traumatised companies, whether Japanese ones in the 1990s or American ones today, won’t invest whatever the level of rates.

We also have Medley’s Ben Emons who argues on a podcast that the Fed is engaging in QE with its measures to stabilise repo markets. Sticking with the pessimistic tone, Deutsche’s Torsten Slok talks about the worrying dynamics in US labour markets.

Our fourth podcast explores Oxford Professor Kalypso Nicolaidis’ new book that claims Brexit is akin to exodus for the Brits and discuss the mythology that binds Britain to continental Europe. Finally, we feature a UBS podcast that discusses the UN’s optimistic sustainability goals set in 2015. The US is not reporting its progress, and more generally, many are struggling to find investments to meet the goals.




Why Governments Haven’t Learned The Lessons Of Japan (Odd Lots, 40 min listen) Richard Koo from Nomura Research Institute coined the concept of a balance sheet recession, which was commonly used during the ’08 Crisis. He uses it to explain why conventional monetary tools have struggled to revive developed economies. In his book, “The other Half of Macroeconomics”, Koo observes that Japanese companies, post the ‘90s bubble burst, weren’t borrowing at all and were instead repaying debt even though rates were very low.

This leads to a collapse of asset prices and mass debt repayment, and consequently the country transforms into a net saver despite heavy stimulus. However, even after balance sheets are repaired, the negative experience of debt repayment lingers in the corporate world and there is less willingness to lever up. Koo sees the US at the end of the repayment path, but at the beginning of a ‘trauma’ one.


Why does this matter? Given all the cues encouraging fiscal stimulus, especially in western economies, we can learn from Japan’s costly mistakes. Fiscal stimulus might be worth pursuing, but not only because monetary policy is exhausted. Rates are at rock-bottom because the private sector isn’t borrowing but savers are abundant. If corporates aren’t borrowing, then governments have to in order to keep the economy going.

Also, the nature of how governments spend money is key. For example, if a tax cut is introduced then firms will use it to repay debt and GDP won’t be affected. As such, spending on public goods and infrastructure and maintaining income levels is the action needed.



Don’t Call it QE (What Goes Up, 34 min listen) In this episode, Ben Emons from Medley Global Advisors and Luke Kawa from Bloomberg debate whether the recent Powell speech on expanding the banks’ balance sheet was a signal for QE. Emons argues it was a ‘QE comeback’, since the normalization of banks’ balance sheets from two years ago created a gap between currency circulation and the reserves system. Now Powell wants to bridge that gap.

Kawa argues the opposite, claiming that Powell’s move was not to push people out of the curve but to serve as forwarding guidance to push short-term rates down. They also discuss the recent turbulences in the Middle East and conclude that their market impacts were regional. However, the US’s current Middle East policies raise greater scepticism against Donald Trump’s presidency and create greater political uncertainties. The market is also prepared for Brexit, and all anchors agree that the market was relatively optimistic about what’s ahead.


Why does this matter? The debate over whether the recent power moves from Central Banks signal an upcoming recession has been around for quite a while. As interpretations regarding monetary policies’ implications vary all the time, investors will need to adjust their own expectations among a plethora of opinions.

When it comes to political uncertainties, it is worth questioning whether the overall ‘optimism’ in the market – as this episode points out – is just another episode of the ‘calm before the storm’, driven by irrationality.



Global Economic Update with Torsten Slok (Podzept with Deutsche Bank, 15 min listen) Recently in our curated content we discussed the healthy US labour market, especially among the low-wage demographic. To bring a contrasting view, in this podcast Torsten Slok, Chief Economist at Deutsche Bank Securities, looks at worrying slower hiring statistics that point to a weakening of the US economy.

Slok highlights major trends showing a decline in job growth from 225,000 six months ago to around 150,000 currently. This is a sharp decline in income with average hourly earnings in September at 2.9% despite peaking around 10 months ago at 3.2% and a slowdown in real personal consumption to a 5-year low of 2.1%. He largely blames the ongoing trade war.


Why does this matter? The US labour market doesn’t look as rosy as the employment report portrays it. The headline numbers we mostly see are based only on one of the report surveys, which is asking details from companies on their latest hiring and redundancies. These can be inaccurate.

 The second survey, which surveys households and individuals, reveals a quirk in the data and hides some underlying signals and trends. Companies are putting a break on Capex and hiring. Combined with the decline in ISM numbers and weak personal consumption, there could be an underwater recession tide forming.



Brexit: A European Odyssey (The Sound of Economics, 42 min listen) Nicholas Barrett and Guntram Wolff discuss Brexit with Kalypso Nicolaïdis, based on her book Exodus, Reckoning, Sacrifice: Three Meanings of Brexit. They discuss the meaning of her book title: Brexit being symbolic for British people and akin to an exodus. The ‘reckoning’ relates to how Brexit represents a reckoning for the EU where they have to deal with questions of identity and sovereignty. Lastly, Britain represents the ultimate ‘sacrifice’ for the EU.


The panel also question whether there was a chance of avoiding Brexit and if there could have been a more generous deal beforehand to limit free movement of labour. They conclude that one way for the EU to move forward is to rethink migration as circular and consider the irony in British macro policy, which rejects collectivist policies from the EU while being one of the most collectivist nation in the EU. Lastly, they discuss the Backstop in Northern Ireland and the Belfast agreement and the need for creative solutions to democratise the backstop and to implement checks in Northern Ireland.


Why does this matter? Nicolaïdis’ book takes a Biblical and mythological approach to understanding the relationship between Britain and continental Europe as well as how British people themselves grapple with Brexit.

Putting this important issue within such a powerful and vivid narrative aid thinking about issues such as the free movement of people across borders and how the EU – a borderless institution – is to create borders with the UK.



Peace, Justice and Strong Institutions (The Bulletin with UBS, 15 min listen) A panel of two of the co-authors of the UN SDG (Sutainable Development Goals) initiative discuss investment areas within goal 16, which focuses on making societies less violent and reducing social inequalities within countries. Rachel Whittaker, Sustainable Investing Strategist at UBS Wealth Management in Zurich, explains that most areas target not just government policy but also corporates.

For investors, there are plenty of interesting opportunities, especially in the space of security and the safety of products. Next, Alexander Steeler, Equity Analyst in Wealth Management, highlights expected cyber security growth of 8% over the next few years and the market reaching $145bn by 2020. This is driven by the ‘internet of things’ which companies will use for large-scale protection. Steeler recommends investors to look into places like the smart lock market, which will grow exponentially.


Why does this matter? A few days ago, the UN General Assembly reviewed the seventeen goals they themselves set in 2015 – the US was the only country that did not volunteer to report progress. As the SDG Summit indicated, the world has quite a bit of catching up to do to put us on course to reach the global goals.

As we move into 2020 for the final 10 years of the SDGs—what has been named a ‘decade of delivery’— it’s important to locate investment for the UN Sustainable goals. But for many this is proving difficult. Engagement from companies, governments, and private investment is vital.



Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)