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Rich Nation Problems: Even If Norway Wanted To Do QE, They Couldn't
When last we visited Norway, the country’s sovereign wealth fund - the largest in the world - had just turned in its worst quarter in four years after losing nearly 17% on EM equity bets (and 21% on Chinese stocks).
Here’s what we said late last month:
Because ZIRP and NIRP are depressing yields on government bonds, Norway is shifting into EM. But the fund's EM bets lost nearly 17% in Q3. Meanwhile, slumping crude prices mean cash injections are about to flatline and indeed, 2016 will actually see the government withdraw some $450 million. Additionally, with US stocks near all-time highs, it wouldn't be entirely unreasonable to say that giant holdings like Apple and Google (pardon: "Alphabet") could suffer heavy losses in the event some exogenous shock (like say a Fed-induced EM meltdown) feeds back into US markets.
As noted, cash injections into the $835 billion SWF have flatlined thanks to the sharp decline in crude prices and although “lower for longer” oil has served to put pressure on the krone, the fact that i) everyone else is easing, and ii) global demand and trade are in the doldrums, serves as a kind of counterweight, leading directly to a situation wherein the currency, in Bloomberg’s words, “just can’t get weak enough.”
This has led many to speculate that Norway will soon be forced to either get to ZIRP in a relative hurry, or else face recession. Of course cutting rates by another 75 bps to zero could very well mean exacerbating the housing bubble. What housing bubble, you ask? This one:
That rather disconcerting chart goes some ways towards explaining why the Norges Bank kept rates on hold earlier this month.
Still, if crude prices remain in the doldrums, Oeystein Olsen may be left with little choice - especially if the ECB eases further in December, prompting a "response" from Norway's neighbors in Sweden and Denmark.
Of course there are always other policy "options" if you want to ease without cutting rates - like QE. The problem for Norway however, is that it's not at all clear that there's enough debt to monetize. Consider the following:
Here's Bloomberg:
Norway is just too rich for quantitative easing.
“If the interest rate weapon is used up, maybe they would try aiming directly for the krone,” said Kari Due-Andresen, chief economist at Svenska Handelsbanken AB. “I don’t know how much traction they would get from buying bonds in Norway, it’s hard to say if it would be a credible strategy due to the small size of the market.”
Norway “could and they would use QE if the situation called for such measures to be taken,” said Kjersti Haugland, an analyst at DNB ASA. “But it would take a significant strengthening of the krone to levels uncomfortable for Norwegian businesses for this to happen.”
Norway has 336 billion kroner ($38.6 billion) in outstanding nominal government bonds, compared with 592 billion kronor ($68.2 billion) in neighboring Sweden. Sweden’s Riksbank last month expanded its bond-purchase plan for a fourth time since February as it tries to keep pace with stimulus measures in the euro zone. Denmark has 376 billion kroner ($54 billion) in total nominal bonds issued.
So essentially, were Norway to go the QE route, they would swiftly find themselves in a situation akin to what happened to Sweden back in the summer. That is, the effect on liquidity would be so great as to essentially "break" the QE virtuous loop and send yields moving in the "wrong" direction as the liquidity risk outweighs the advantages of frontrunning potential Norges Bank purchases in the minds of investors.
If QE isn't feasible that means that in order to stay competitive in the global currency wars, Norway will may need to intervene directly in the FX market.
And if that doesn't work, you know what comes next:
“My guess is that we will have negative rates in Norway before there will be any talk of QE,” Handelsbanken’s Due-Andresen said.
It's NIRP's world, we just live in it.
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At least their housing chart is a straight line and not going parabolic. Never go full parabolic.
Hell the Norway SWF and teacher's pension fund are worse than calpers, cref, and fidelity put together. they truly will buy anyfuckingthing.
Does the prospectus need to be in Norwegian or will English do?
Poor Norway....it must totally suck to have a sovereign wealth fund of only $835B and a debt-to-GDP ratio of 30%. Not to mention all the terrible looking women who live there and the lack of beautiful scenery...... /sarc
"It vas a gut oil bubble, ja."
So, even the richest nation, with billions put away (in fact almost a trillion) for a rainy day, cannot cope.
God help the rest of us.
They'll cope just fine; they just won't do it in the assinine "double-down for eternity" methodology employed by the debtwranglers of the West.
Norway: Keynes done right?
Norway had a nice thing going with few inhabitants and lot's of oil. But just wait for the fuck up to rear it's head. The promieses are too many and the returns on the soveriegn wealth fund will be too small. In 2016 Norway will withdraw more money than it puts into it's fund for the first time.
Care to place a wager on how many times that will happen in a row?
Depends. If they weather the storm for even awhile as everyone else gets ripped a new asshole, they may be able to walk through the wreckage buying good deals on the cheap.
That and they're generally pretty crafty fuckers that will adapt well to the new tech economy as they have for centuries (otherwise, they'd still be fishermen with a nice fleet).
Not enough debt to monetarise?
Bernie Sander's, your time has come, Norway needs your talents like never before!
I thought Norway was going directly to the choppahs with 800 zooro/mo dole instead of benefits.
Norway just needs to go on a major precious metals buying spree. Doesn't have to be all gold, a mix of metals would be good.
Just metallic metal, not paper metal. That will weaken the Krone if they buy enough metal for Kronar.
Hell, they are the ideal country to take in 8 or 900,000 of the poor Syria immigrants and put them all on the dole. Merkel would go lick Solberg's cunt forever for the gesture. (They WOULD make a fine pair...)
Eyewash warning...
https://www.google.com/search?q=Solberg+and+Merkel+photo&espv=2&biw=1024...
The funny part is that they have debt at all, given their sovereign wealth fund + current rates of taxation. Their debt to GDP ratio should be zero.
Norway has No NET debt. The AUM of the SWF equal 3 times GDP and debt is 0.3 times GDP. THE SWF is worth about USD 165,000 per capita. It could provide every Norwegian $16K a year for the next ten years and still have money left over.