Credit Writedowns

The Swedish krona is somewhat firmer today but it is the biggest loser among the major currencies this week. It has lost about 2.3% against the dollar and 2.1% against the euro. According to Bloomberg, this is the single biggest weekly decline of the krona against the euro in about a year and a half. There were two factors that [...]

Sweden has been one of the countries to have best weathered the economic crisis. Despite a hiccup in its domestic economy and the extra deflationary impulse from souring loans to the Baltics in 2009, the Swedish economy has been remarkably resilient. Yet, the economy has begun to falter, in large part because of its connectedness to the euro zone. The Swedish central bank, the Riksbank, has cut interest rates to 1% as the economy slows. But it is housing inflation and the related high levels of household debt which are the true Achilles heel for Sweden.

The destructive quality of irredeemable credit, understood by some before the U.S. mortgage crash, obvious to more in its wake, was crystallized in the too-low, centrally controlled, interest rates that flushed a bacillus of fake money and credit, even though it was mathematically impossible for overzealous borrowers to produce cash in quantities sufficient to meet loan payments.

Nowhere does The Economist suggest Scandinavian countries are similarly hobbled despite the tell-tale data (published in every issue of The Economist). “The Next Supermodel” is being celebrated, at least partially, as a consequence of medicated interest rates. The Economist could follow its Scandinavian advert with a cover story on another praiseworthy economy: Canada.

In the past year, I have increasingly turned away from the US housing market to stress the difficulties now besetting other global housing markets because there have been large house price appreciations (and some declines) elsewhere in places like the Netherlands, Denmark, Australia, Canada and France.

I saw this story yesterday in a Swedish newspaper and thought it was interesting enough to comment on. Apparently, Swedish investment professionals are telling clients that the Spanish market is “hot” right now, given the depressed state of house prices there. I don’t know exactly what to make of this phenomenon since I haven’t seen it widely reported. But it [...]

Tim Duy has an interesting piece out that dovetails with something I had been saying in the comments here just yesterday. It has to do with austerity as an economic policy response in this post-crisis world. According to Bloomberg News, German Chancellor Angela Merkel used a trip to Canada as a venue to push for more austerity. As Tim notes, [...]

Sweden reported stronger business and manufacturing confidence numbers earlier this week, but the Feb retail sales report was a more significant catalyst. There are four new developments from Norway today. Individually and collectively, they are positive for the NOK. The Norwegian krone and Swedish krona are the strongest major currencies today, appreciating about 0.85% and 0.6% respectively. While the fundamental justification of the more modest gains in the other major foreign currencies may be more elusive, in the Scandi’s case, fundamental developments are supportive.

This was the question put to the ECB’s Klaus Masuch by one persistent Irish journalist. The answer from Masuch was a complete dodge, a non-answer, because everyone knows that the Irish government has heaped what rightfully should be bondholder burdens onto the Irish taxpayer. The video below is wonderful in getting at the heart of everyone’s problems with the bailouts [...]

Ten thoughts on the economy and markets that include events in Greece, the US, Sweden, the EU and China.

Sweden may have a bubble in its housing market. But now that housing prices have begun to fall, it is too late to deploy countermeasures.

Successful Spanish and Greek bill auctions and better than expected German IFO caught the market wrong-footed, if the record net speculative short at the IMM is anything to go by. The euro has shot up to almost $1.3090 and pulled up the other major currencies and emerging market currencies in its wake.

A French press report warned that S&P could put France on negative credit watch within a couple of weeks. Moody’s warned that all 27 EU countries are at risk from the euro zone debt crisis. Moody’s also placed subordinated debt, junior debt and tier 3 capital of 87 banks in 15 European countries on negative watch. The market impact seemed marginal at best.

There was some unadulterated good news today in the form of Sweden’s Q3 GDP. It blew away expectations of a 0.3% quarter-over-quarter increase with a 1.6% showing.