19 February 2019 FT — Articles to Read

19 February 2019


Question: How much U.S. student debt is in serious delinquency according to MSN: Money?  (serious delinquency is defined as 90 days past due)


Fed nears decision on ending balance sheet cuts – Pg. 3

–          Even if the Fed decides when to halt the scheme, it still leaves open questions over the future composition of the Fed asset holdings – an issue that could have market ramifications of its own

–          The Fed swelled its balance sheet to $4.5tn as it battled the financial crisis and economic downturn, purchasing Treasuries and mortgage-backed securities in a bid to buoy markets and the economy.  Former Fed Chair Janet Yellen put the process into reverse in 2017, gradually allowing the asset holdings to shrink as the central bank withdrew its monetary support for the economy

–          The flipside of the Fed’s asset holdings are liabilities, including currency in circulation and commercial bank reserves held on deposit with the Fed.  The Fed wants to keep more of these deposits than before the crisis, but gauging the exact levels of reserves it needs to limit volatility in money markets is difficult

–          Reserves are now about $1.6tn, down 40% from their peak but far above pre-crisis norms

–          ….reserves would need to be $1tn-$1.3tn to prevent excessive money market volatility, plus a buffer to cover fluctuations in demand and supply

–          After the balance sheet reduction process is over, the Fed is expected to continue letting its holdings of mortgage-backed securities run off – and a looming question is whether to actively sell some to clean them off its balance sheet more quickly

–          To maintain its balance sheet it will eventually have to become a net buyer of Treasury securities again


German economy – Pg. 7

–          The slowdown has exposed a thorny problem for Germany.  An export champion, it has been one of the biggest beneficiaries of globalization, free trade and open borders: exports are equivalent to 50% of its GDP

–          Yet its export success also makes it uniquely vulnerable to external shocks

–          Many fundamentals continue to be strong: employment is at a post-reunification high; household spending is healthy; and wages and pensions have been rising at rates above inflation

–          Carmakers are already feeling the pressure from these external factors.  They have been directly affected by a decline in China, where 2018 car sales fell 2.8% to 28.1m – the first contraction in the market since the 1990s.  forecasts had predicted growth of 3%


Developers drive consolidation by snapping up distressed Chinese real estate debt – Pg. 12

–          Property developers have found a new play on the Chinese market: buying up the soured debts of their rivals

–          China’s economic slowdown has also resulted in record sales of bad debt, ….

–          Property developers are among the most indebted companies in China…

–          There are 90,000 property development companies in China but the top 100 groups account for 67% of total sales


Answer: $166.0bn (highest EVER)