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Bernanke urges attention to crisis risks amid war and dollar’s rise

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(Bloomberg) — Former Federal Reserve Chairman Ben Bernanke, a Nobel laureate in economics Monday for his research on financial crises, urged policymakers to watch for any deterioration in financial conditions around the world as the pressures from war and currency fluctuations weighed. economies.

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“Even if the financial problems don’t start a loop, over time, if the loop exacerbates financial conditions, they can make the problem worse and intensify, so I think we really have to pay close attention to it,” he said Monday during a news conference at the Brookings Institution in Washington, where He works as an outstanding colleague.

While the US financial system is in better shape than it was before the global crisis in the late 2000s, he has discussed the concerns elsewhere. In Europe, for example, financial institutions could come under pressure by shutting down natural gas flows due to Russia’s invasion of Ukraine, while emerging markets “are facing a very strong dollar and a lot of capital outflows,” he said.

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Earlier on Monday, the Royal Swedish Academy of Sciences announced the Nobel Prizes for Bernanke, Douglas Diamond of the University of Chicago and Philip Dipvig of the University of Washington for their research into banking and financial crises.

Diamond, in a separate press briefing on Monday, said central bankers should proceed cautiously while raising interest rates to prevent fear and a “self-fulfilling prophecy” from creating financial instability.

bank failure

The Academy has described Bernanke as a “Great Depression buff,” and the Academy has cited him for his work in that era. In a 1983 research paper, he showed that the deflation had become so deep and largely prolonged because bank failures had severely shrunk credit, causing great damage to the economy.

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Later he put this research to work when he was chairman of the Federal Reserve and the economy was hit by a financial crisis in 2008 and 2009 as a result of the housing bubble that collapsed. While at first he was slow to realize the potential fallout from falling home prices on the financial system, Bernanke then worked hard to combat the crisis and prevent it from turning into another depression.

Today, while there may be some financial stability risks in the United States, Bernanke said on Monday that “we’re certainly not in anything as dire as we were 14 years ago.”

Diamond, for his part, sees the banking system in much better shape than it was in 2008 during the financial crisis, in part due to the new regulation. While he declined to comment on current concerns about inflation and monetary policy in the US, he noted in the longer term that the Fed has “performed remarkably well in terms of financial stability.”

Bernanke said the Fed still faces a “very difficult challenge” in trying to engineer a soft landing that lowers inflation without causing a recession.

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It appears that US central bankers are preparing to raise interest rates again as they try to slow the economy to bring down inflation when they next meet on November 1 and 2.

Inflation – as measured by the PCE price index – was measured at an annual rate of 6.2% in August, the 18th consecutive month, above the Fed’s 2% target.

Under Bernanke, the Fed adopted a 2% target in 2012, applying some of its research that showed inflation targets useful in helping central banks manage the volatility of their economies.

“What has to be taken into account is that the inflation target is a medium-term target,” Bernanke said. “It doesn’t have to be fulfilled in six months or anything like that.”

He said that as the economy slows in response to the Fed’s rate hike, policy makers will “begin to balance” their twin goals of price stability and maximum employment in setting monetary policy.

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(Adds Bernanke’s comments from the 10th paragraph onwards)

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Your wallet is drained by subscriptions. Wall Street thank you.

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Try to calculate the number of subscriptions you have. We’ll wait.

There’s your Amazon Prime and your Spotify — the ones you married. How about that Apple TV+ subscription you’ve been meaning to cancel since you watched Ted Lasso… last summer? Scroll through your cellphone (it’s the same as another subscription) and you might find a Calm app your doctor recommended that you haven’t actually used, or a dating app you’ve used and hated, but will likely use again. There is a Chewy subscription to feed your dog DoorDash Subscribe to Feed Yourself and sign up for Peloton to work on the food you just ate. And of course, there’s also a Wall Street Journal subscription necessary to read this article.

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Norway’s $1.3 trillion wealth fund encourages traders to bet against the market

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(Bloomberg) — Nikolai Tangen, head of Norway’s $1.3 trillion sovereign wealth fund, wants traders to bet against the market.

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The world’s largest single owner of publicly traded companies, with nearly 1.3% of all listed shares, on Thursday outlined a three-year plan to limit losses that have accumulated in turbulent markets for 2022, exacerbated by soaring inflation and rising interest rates. and war in Europe. For the first time in its history, the wealth fund is looking forward to a future in which investments are a fraction of what they used to see.

This means that “excessive returns are more important than ever,” said Tangen, who has repeatedly told his countrymen to prepare for “extremely low returns.”

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Speaking in an interview Thursday, Tangen said the key to beating the benchmark would be to “push the fund to become more long-term, more ambivalent, and more active in terms of passive selection.” That is, “there are a lot of things we don’t want to own,” he said, without elaborating.

Built from the wealth of the North Sea in oil and gas, the Oslo-based fund has warned of a prolonged downturn in the markets after posting an average return of 6% over a quarter century of its existence. It lost 4.4% in the third quarter, which is equivalent to about $43 billion.

The fund has only one owner, unlike other large asset managers, is largely affiliated with the index, and invests according to a strict mandate from the Ministry of Finance. She strives to make the most of her limited field to try and beat the standard against which she is measured, something she has been able to achieve in eight of the past ten years.

“In a volatile world, you need to be more long-term and more ambivalent,” Tangen said. This is “because there will be more opportunities when you can do the opposite with everyone else.”

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He said the strategy was “playing into heightened geopolitical uncertainty” and a partial reversal of globalization, while the wealth fund released its three-year strategy. The plan sets goals such as investing in companies before they go public, voting more actively at shareholder meetings, improving cooperation between traders and portfolio managers, and exploiting periods of turmoil in real estate markets.

The fund also needs to be “more robust operationally,” Tangen said, including being prepared to counter cyberattacks. He has already said that openness and transparency are priorities to ensure that Norwegians understand why their rain fund is not growing as quickly as before.

The fund scaled back its participation in initial public offerings last year. In hindsight, he dodged a bullet, Tangen said, having bought fewer IPOs in “really frothy” markets and seeing those IPOs perform “really badly.” But that is likely to change as conditions improve.

“Selectively exploring this opportunity in the next strategy period is something we will look at,” said Equity CEO Pedro Furtado Reis. “Doing this allows us to get into the life cycle of the company earlier and hopefully as the company grows it will have a greater share of that value.”

The fund said it would consider investments in renewable energy storage and transmission in the future, which would expand the range of renewable infrastructure it would like to keep. It spent about 1.4 billion euros ($1.5 billion) on a 50% stake in a Dutch offshore wind farm in 2021, but has not added anything else to its renewable energy infrastructure portfolio.

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“It’s competitive,” Tangen said of the wind and solar projects market. “There aren’t a lot of projects out there, they’re very competitive and the returns are very low. So we just want to increase the space. Generally in the investment world, the more options you have, the better.”

The broader scope in renewables also reflects an internal effort within the fund to improve collaboration between teams and identify new investment opportunities, said Daniel Baltazar, chief equity officer.

“We may have built a few more silos than we should have,” Balthazar said. “With the advent of Nikolai, there is a much greater effort to collaborate between teams. With this collaboration between teams, we can also search in a better way across value chains.”

(Updates in detail in sixth paragraph, comments with CEO in twelfth)

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Saudi Arabia signs Huawei agreement, deepening ties with China on Xi’s visit by Reuters

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© Reuters. Chinese President Xi Jinping arrives in Riyadh, Saudi Arabia, December 7, 2022. Saudi Press Agency/Handout via Reuters

By Aziz El Yacoubi and Eduardo Baptista

RIYADH (Reuters) – Saudi Arabia and China offered deep ties with a series of strategic deals on Thursday during a visit by President Xi Jinping, including one with tech giant Huawei, whose growing incursion into the Gulf region has raised US security concerns.

King Salman signed a “comprehensive strategic partnership agreement” with Xi, which has received a warm welcome in a country that has forged new global partnerships outside the West.

Xi’s car was escorted to the king’s palace by members of the Saudi Royal Guard riding Arabian horses and carrying the Chinese and Saudi flags, and he later attended a welcome banquet.

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The Chinese leader held talks with Crown Prince Mohammed bin Salman, the de facto ruler of the oil giant, who greeted him with a warm smile. Xi ushered in a “new era” in Arab relations.

The offer stood in stark contrast to the quiet welcome given in July to US President Joe Biden, with whom relations have been strained by Saudi energy policy and the 2018 killing of Jamal Khashoggi that overshadowed the embarrassing visit.

The United States, which has warily watched China’s growing influence and its relations with Riyadh at rock bottom, said Xi’s trip is an example of Chinese attempts to exert influence around the world and will not change US policy toward the Middle East.

A memorandum was agreed with the Chinese company, Huawei Technologies, regarding cloud computing and building high-tech complexes in Saudi cities, despite the US discomfort with Gulf allies over potential security risks in using the Chinese company’s technology. Huawei has participated in building 5G networks in most of the Gulf countries despite the concerns of the United States.

Prince Mohammed, who fists instead of shaking hands with Biden in July, returned to the world stage after Khashoggi’s killing and has been defiant in the face of American anger over oil supplies and pressure from Washington to help isolate Russia.

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In a further polishing of his international credentials, Saudi Arabia and the United Arab Emirates said on Thursday that the emir and the Emirati president had led a joint mediation effort to secure the release of American basketball star Brittney Griner in a prisoner exchange deal with Russia.

In an opinion piece published in Saudi media, Xi said he was on a “pioneering journey” to “open a new era of China’s relations with the Arab world, the Arab Gulf states and Saudi Arabia.”

Xi added that China and Arab countries “will continue to raise the banner of non-interference in internal affairs.”

China’s state broadcaster CCTV said that sentiment was echoed by the crown prince, who said his country opposed any “interference in China’s internal affairs in the name of human rights”.

Xi, who is set to meet other Gulf oil producers and attend a broader meeting of Arab leaders on Friday, said China will work to make those summits “landmark events in the history of China-Arab relations,” and that Beijing regards Riyadh as “an important force in the multipolar world.” .

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Saudi Arabia and other Gulf states such as the United Arab Emirates have said that they will not pick sides among the world powers and that they are diversifying partners to serve national economic and security interests.

“reliable partner”

China, the world’s largest energy consumer, is a major trading partner of the Gulf states, and bilateral ties have expanded as the region pushes for economic diversification, raising US concerns about China’s participation in sensitive Gulf infrastructure.

The Saudi energy minister said on Wednesday that Riyadh will remain a “reliable and reliable” energy partner of Beijing and that the two countries will enhance cooperation in energy supply chains by setting up a regional hub in the kingdom for Chinese factories.

The Saudi Press Agency reported that Chinese and Saudi companies also signed 34 deals to invest in green energy, information technology, cloud services, transportation, construction and other sectors. It did not give figures, but said earlier that the two countries would conclude initial deals worth $30 billion.

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Tang Tianbo, a specialist on Middle East affairs at the China Institute of Contemporary International Relations — a think tank affiliated with the Chinese government — said the visit will lead to further expansion of energy cooperation.

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