Recession predictions

Roger the cabin boy wrote: »

Deutsche Bank to close 20% of domestic branches

Yes - in Germany. Deutsche Bank dont offer retail services in Ireland.

Do I see banks taking the opportunity to close branches - definitely. Banks are always looking for way to save costs and this will be the perfect cover to close down those branches that are/were considered uneconomic.

But in terms of actual banks closing down that you inferred earlier (i.e. Ulster) - no.

Roger the cabin boy wrote: »

Deutsche Bank to close 20% of domestic branches

I don’t think the closure of branches is due to covid. All banks want to close branches and get customers to use digital platforms. Covid may speed this process along.

What will be interesting with the banks is whether we will see a credit risk appetite reduction in certain sectors once the increase in non performing loans start to eat into there capital reserves.

If there is a credit squeeze it will slow down the overall economy so will be interesting to see if the action taken by ECB/countries to cut capital buffers is enough to prevent this.

Wanderer78 wrote: »

unfortunately im expecting a financial sector wobble very very soon, particularly globally, of which we re complexly intertwined with, a very similar set of circumstances is currently at play in the sector, compared to pre 07/08

07/08 was predominantly a liquidity crises and I can’t see this being the cause again as enough work has been undertaken and there is loads of liquidity out there.

If there is a wobble it will be in the shadow banking sector e.g. funds.

Wanderer78 wrote: »

will they be willing to take the risk! i think it could be, i think it would be best to blow out deficits, and push it into the public domain, less risky

They have already cut the capital buffers on the banks which should give the bank’s capacity to lend to customers. Whether it is enough is the question.

If countries blow out deficits then we could easily see another sovereign crisis a few years down the road when gov debt is rolled over.. very big risk to take

Wanderer78 wrote: »

i understand that alright, but we re experiencing a dramatic drop in the demand for new credit and an increasing likelihood of defaults and non performing loans, the longer this goes on, this could be a big problem for the sector

Yes I fully agree but the drop in demand for new credit Particularly retail has been there for a while and to counter act this banks have undertaken more corporate lending to the likes of funds. This is why this sector has grown so fast. The approach by the ECB with there negative interest rates and QE encourages lending. as banks got burned by mortgages and cre lending at the last crash they have a reduced risk appetite to lend to this sector. Instead they have lent to funds sector who along with investors cash have invested in CRE to take up the slack in the market and this is where I see the risk

Wanderer78 wrote: »

who will be willing to take on these debts, while heading into such uncertainty?

as we ve learnt yet again from 08, growing private sector debt is far more risky and dangerous than growing sovereign debt, plough on with the sovereign debt!

If the sovereign debt is used to improve infrastructure or something tangible then yes but if it is just used to pay running costs then that spells disaster

Wanderer78 wrote: »

completely agree there, you have to do something of benefit with the debt, there has to be a return, in order to service the debts, it could be easily used to support infrastructure projects, stimulating the private sector in the process

Yes but EU law stops us from doing it before ..with France and Spain in the same boat this time they will probably let everyone crack on and do it.

Timing belt wrote: »

Yes but EU law stops us from doing it before ..with France and Spain in the same boat this time they will probably let everyone crack on and do it.

i think so to, stupid law anyway, even though im sure there is some sort of good reason for it, but pushing majority of debt out to the private sector is lethal, its disturbing we havent figured this out from the past, from even a few years ago!

Wanderer78 wrote: »

i think so to, stupid law anyway, even though im sure there is some sort of good reason for it, but pushing majority of debt out to the private sector is lethal, its disturbing we havent figured this out from the past, from even a few years ago!

The rule is there to protect all countries with the Euro without the value of euro could weaken by one country taking out a load of debt.

one of the precondition for countries joining euro was debt cannot exceed x% of gdp But even that got fudged by countries taking out public-private debt as it wasn’t counted. If it wasn’t fudged Italy and Greece would never have been allowed join euro

Sorolla wrote: »

Once the vaccine is available around March 2021 and the world gets immunization there will be a feeling of euphoria and hope among the nations of the world.

The world economy will experience economic growth as never seen before - it will be the most beautiful thing

Our futures will be brighter and we will have wealth not imaginable at this present time

Currently I think there is too much pessimism and people should take a daily dose of 25 ug of Vitamin D or eat oily fish like tuna to make us feel better

This pessimistic outlook is already priced into stock markets

The roaring 20’s are just about to begin

A recession has been due for a while covid is only the trigger. Markets run on fear and greed. And there has been a long run of greed.

Sorolla wrote: »

Once the vaccine is available around March 2021 and the world gets immunization there will be a feeling of euphoria and hope among the nations of the world.

The world economy will experience economic growth as never seen before - it most beautiful thing

Our futures will be brighter and we will have wealth not imaginable at this present time

Currently I think there is too much pessimism and people should take a daily dose of 25 ug of Vitamin D or eat oily fish like tuna to make us feel better

This pessimistic outlook is already priced into stock markets

The roaring 20’s are just about to begin

Donald Trump speak

StevenToast wrote: »

Donald Trump speak

Lol

Timing belt wrote:

Yes but the only reason that eu sovereigns have access to cheap funding is because they are pushing it out to the private sector. They are caught in a dangerous cycle

To be honest, I think we re all caught in dangerous cycles, in regards the running of the EU, we urgently need dramatic changes of its operations, or it could all go down, it's looking like Italy could very well be the next canary, covid could push things to the limit again, very worrying time for the union.

Timing belt wrote:

It’s always more complex because there are always unforeseen consequences but at the heart of it is greed and fear

Again, I think its far more complex than just this also, but again, there are elements of this to, I truly do believe it's more complex human behaviour than anything, fundamental institutional changes are required, urgently, and probably the creation of new institutions also, it's time we steeped up to it, rather than our usual can kicking approach

Timing belt wrote: »

A recession has been due for a while covid is only the trigger. Markets run on fear and greed. And there has been a long run of greed.

It isn't just an economic swing coming.

Covid has brought forward permanent changes to society.
WFH is a huge hit to economic output and it is not going away.
Working in an office will never be the same again. Ever.

That's a massive change in itself. The amount of industrial effort it takes to get to an office 5 days a week is significant.
Clothes, food, transport, fuel, infrastructure, time, are all required just to get to and from. Even if WFH is a fraction of the total hour worked, it will still be a big hit to economies.

Then you have the rapid shift from bricks and mortar stores to online.
Again, the economic footprint of a shop is so much bigger than that of a warehouse business.

These are just two if the consequences of Covid. You could look at every part of life it is affecting and see similar huge change.

This time it is different.

Roger the cabin boy wrote: »

It isn't just an economic swing coming.

Covid has brought forward permanent changes to society.
WFH is a huge hit to economic output and it is not going away.
Working in an office will never be the same again. Ever.

That's a massive change in itself. The amount of industrial effort it takes to get to an office 5 days a week is significant.
Clothes, food, transport, fuel, infrastructure, time, are all required just to get to and from. Even if WFH is a fraction of the total hour worked, it will still be a big hit to economies.

Then you have the rapid shift from bricks and mortar stores to online.
Again, the economic footprint of a shop is so much bigger than that of a warehouse business.

These are just two if the consequences of Covid. You could look at every part of life it is affecting and see similar huge change.

This time it is different.

Some people seem to think when we get a vaccine we will go back to normal
There will be no normal left to go back to
I hate the phrase but we all best get used to the NEW NORMAL because it is going to around till the next pandemic hits

Timing belt wrote: »

Yes but these changes have a bigger impact on the financial stability of the economy. If for example you look at a normal retail shop the rent from the property has probably been securitised and off the back of this there has probably been a CLO Which has done an issuance which has probably been subscribed to by some fund Which has used the cash to make an investment either in shares or real estate. If the retail shop can no longer pay rent then the whole thing falls apart which has an impact on the stock market or on the property market. It just takes time for changes to flow down the pipes till we see the real impact.

Thats why commercial ,property (ie retail, hotel ,office ) mortgage holders are becoming increasingly worried
This article was published on Feb 8 2020
A lot of these projects will have financed the purchase of sites
A lot that started building will have no option but to complete and never open
Of all of these how many will be built and how will existing debt be repaid

https://www.irishtimes.com/life-and-style/travel/ireland/100-new-hotels-for-dublin-is-that-too-many-or-too-few-1.4162692

Roger the cabin boy wrote: »

It isn't just an economic swing coming.

Covid has brought forward permanent changes to society.
WFH is a huge hit to economic output and it is not going away.
Working in an office will never be the same again. Ever.

That's a massive change in itself. The amount of industrial effort it takes to get to an office 5 days a week is significant.
Clothes, food, transport, fuel, infrastructure, time, are all required just to get to and from. Even if WFH is a fraction of the total hour worked, it will still be a big hit to economies.

Then you have the rapid shift from bricks and mortar stores to online.
Again, the economic footprint of a shop is so much bigger than that of a warehouse business.

These are just two if the consequences of Covid. You could look at every part of life it is affecting and see similar huge change.

This time it is different.

Added to that, I do fear we have passed the greatest era of globalisation in terms of travel and trade, at least for the medium term.

Air travel is going to take many years to recover and get back to pre-covid capacity & pricing. Its not just business & tourist travel affected, there has been massive disruption to the 'just in time freight' via commercial airlines.

And global trade will take a hit as supply chains are shortened and the US & China seem destined for a digital divide which will also inhibit trade.

brisan wrote:

Thanks for that insight So it will not take much for the whole house of cards to collapse again Add Brexit into the mix and it does not look good

This is what I've been fearing all long, I'd also like to add my thanks also, some great insight, I've been aware of the shadow banking system, but unaware of its workings, I'm fearing the really scary stuff, so hopefully it doesn't happen

Just to give and example of why I think the CLO market will be impacted I did some digging on a random CLO that I selected from the CLO's listed on the Irish Stock exchange CAMPUS LIVING VILLAGES (BOND ISSUER) UK PLC.

This CLO issued £157m GBP by securitising the rents on student accommodation properties. It relies on student accommodation occupancy rates and the regular paying of rents. If Covid has impacted these occupancy rates and the paying of rent then this will impact the return (and possibly the capital) on whoever has invested in the CLO. In this case it was probably CLV Funds Management based in Australia that bought the notes to finance the acquisition of UK student accommodation via a web of investment companies and trusts. you can tell this by looking at the prospectus for the CLO Issuance.
source: https://www.ise.ie/debt_documents/Prospectus%20-%20Standalone_59de219c-024a-44fb-87ba-a623700ea7bb.PDF

So the next question is who are the investors behind CLV Funds Management and you will see that Australian pension funds are a source for a large chunk.
source: https://en.wikipedia.org/wiki/Campus_Living_Villages


In Summary
Australian pensions funds will be hit by a downturn in rents from student accommodation in UK/USA/Australia/NZ. The Australian pension funds are invested by the ordinary man on the street that is saving for his pension who could see a big drop in his pension value.

This is just one example but the same logic can be applied to:
- retail shops where the rent from these has been securitised and invested in by a fund.
- Office Space where the rent from the CRE has been securitised and invested in by a fund
- Public/Private Transport where Buses/Trains/planes or other such assets have been securitised and invested in by a fund.

All the above sectors that have been deeply impacted by covid which means that the underlying investor will take a hit. who is the underlying investor is the question but we know that pension fund and insurance companies are heavy investors so that will translate to a drop in your pension value and probably an increase in your insurance premiums. I might be wrong but time will tell as it will take time for the effects to be seen.

The longer covid impacts the wider economy the greater chance that these funds start stopping investors from withdrawing which could put the overall markets into shock, especially if contagion set in amongst the funds because investors were not 100% sure in what they actually had invested in or what risks exists.

Timing belt wrote: »

Just to give and example of why I think the CLO market will be impacted I did some digging on a random CLO that I selected from the CLO's listed on the Irish Stock exchange CAMPUS LIVING VILLAGES (BOND ISSUER) UK PLC.

This CLO issued £157m GBP by securitising the rents on student accommodation properties. It relies on student accommodation occupancy rates and the regular paying of rents. If Covid has impacted these occupancy rates and the paying of rent then this will impact the return (and possibly the capital) on whoever has invested in the CLO. In this case it was probably CLV Funds Management based in Australia that bought the notes to finance the acquisition of UK student accommodation via a web of investment companies and trusts. you can tell this by looking at the prospectus for the CLO Issuance.
source: https://www.ise.ie/debt_documents/Prospectus%20-%20Standalone_59de219c-024a-44fb-87ba-a623700ea7bb.PDF

So the next question is who are the investors behind CLV Funds Management and you will see that Australian pension funds are a source for a large chunk.
source: https://en.wikipedia.org/wiki/Campus_Living_Villages


In Summary
Australian pensions funds will be hit by a downturn in rents from student accommodation in UK/USA/Australia/NZ. The Australian pension funds are invested by the ordinary man on the street that is saving for his pension who could see a big drop in his pension value.

This is just one example but the same logic can be applied to:
- retail shops where the rent from these has been securitised and invested in by a fund.
- Office Space where the rent from the CRE has been securitised and invested in by a fund
- Public/Private Transport where Buses/Trains/planes or other such assets have been securitised and invested in by a fund.

All the above sectors that have been deeply impacted by covid which means that the underlying investor will take a hit. who is the underlying investor is the question but we know that pension fund and insurance companies are heavy investors so that will translate to a drop in your pension value and probably an increase in your insurance premiums. I might be wrong but time will tell as it will take time for the effects to be seen.

The longer covid impacts the wider economy the greater chance that these funds start stopping investors from withdrawing which could put the overall markets into shock, especially if contagion set in amongst the funds because investors were not 100% sure in what they actually had invested in or what risks exists.

This is really interesting.

Except you point about Australian pension funds comment - Listed & unlisted property only makes up 9% of the total asset allocation of the $1.8 trillion of ordinary funds, whereas equities account for roughly half. Much of that property is also in Australia, so any drop here probably wouldn't impact much, unless as you say it was part of a wider contagion.

wassie wrote: »

Well written piece - I feel that prior to Covid there was a lot of noise/worry about the levels of corporate debt the world was drowning in.

Yet since over the last 6 months that conversation has markedly dropped off, yet the problem hasn't gone anywhere.

still plenty of people shouting and screaming over corporate debt though, which is in the private domain!

wassie wrote: »

Well written piece - I feel that prior to Covid there was a lot of noise/worry about the levels of corporate debt the world was drowning in.

Yet since over the last 6 months that conversation has markedly dropped off, yet the problem hasn't gone anywhere.

Bit like our housing problem
Agreed it was well written so as even an amateur economist could understand

brisan wrote: »

That's scary
The fact the banks are trying to hide it even more so

The fed through it’s Primary Market Corporate Credit Facility (PMCCF) have added a back stop to prevent a Big Bang on CLO’s. The other thing that is important is what level of default would impact the banks as most of them hold the top tranches so the lower tranches would need to be wiped out before they get hit.

Timing belt wrote: »

Yes you are correct most of these issues are a created unintentionally whilst trying to fix another issue.

yea i think so, this is getting very messy though, its endangering all humans, including the wealthy

Timing belt wrote: »

Yes it gets more complex with every human intervention but if they stood back and let market sort it out it would be an absolute disaster. I suppose it is is a case of the lesser of two evils.

humans created this mess, and we re gonna have to clean it up, eventually, hopefully the planet is capable of supporting us at that stage. its disturbing we re still holding onto this, the market knows best nonsense, it really is disturbing! i do think we re painfully moving into another form of capitalism, lets hope we dont end this one with a bang, like the last time!