Finance

Bank stocks remain under pressure due to high interest rates as financial firms like Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) get ready to kick off earnings season. Like other big banks, Wells Fargo and Morgan Stanley have been caught in the throes of the central bank’s interest-rate-hiking campaign over the past 18 months. Both have been pulling back on lending to be more conservative with their capital as credit conditions have tightened — with a potentially negative impact on revenue streams and overall profits when the firms report earnings in the coming days. “Increasingly, I think that the only thing that can change things with either bank is the end of the tightening cycle so people will be less worried about credit woes,” Jim Cramer said Wednesday . As part of its effort to battle persistent inflation, the Fed has raised its benchmark interest rate 11 times since March 2022, with rates at their highest levels in 22 years . On top of operating in a high-interest-rate environment, financial firms are still rebounding from the collapse of a string of regional lenders, starting with the shuttering of Silicon Valley Bank (SVB) in March. Wells Fargo and Morgan Stanley are down on the year amid the difficult backdrop, falling 4.3% and 8.6%, respectively. The KBW Bank Index , a benchmark stock index of the banking sector, has lost more than 24% year-to-date. Still, both Club banks have solid fundamentals and diverse revenue streams that leave us bullish in the long term. Wells Fargo is set to report third-quarter results before the opening bell on Friday, while Morgan Stanley is slated to post results next Wednesday. WFC YTD mountain Wells Fargo (WFC) year-to-date performance For the three months ended Sept. 30, analysts expect Well Fargo to report revenue of $20.1 billion, compared with $19.5 billion during the same period a year prior, according to Refinitiv. Earnings-per-share should come in at $1.24, up 45% year-over-year, Refinitiv estimates showed. Wells Fargo’s cost-cutting measures and its forecast for its real estate loans will be front and center Friday. Out of the major U.S. banks, Wells Fargo has the largest exposure to the ailing commercial real estate market, an industry troubled by higher rates and near-record office vacancy levels. Offices represent roughly 22% of Wells Fargo’s outstanding commercial property loans and 3% of its whole loan book. In the bank’s July earnings report, CEO Charlie Scharf said Wells Fargo sustained “higher losses in commercial real estate, primarily in the office portfolio,” adding that while there have been “significant losses in our office portfolio-to-date, we are reserving [capital] for the weakness that we expect to play out in that market over time.” Wells Fargo “remains focused on making the company more efficient and has been reducing headcount” since the third quarter of 2020, Barclays analysts wrote in a recent note. In September, Chief Financial Officer Mike Santomassimo said the bank could slash headcount further, on top of nearly 40,000 layoffs over the past three years. Meanwhile, Wells Fargo slowed its pace of stock buybacks significantly over the past few quarters, even though the stock is at a lower price point and the bank remains well-capitalized. “My hope is that this Friday [Scharf] changes his mind when the company reports and it can sop up the excess stock,” Jim said. Scharf “has bought back 300 million shares, almost a tenth of the share count, since he took over in 2019,” Jim added. MS YTD mountain Morgan Stanley (MS) year-to-date performance For the three months ended Sept. 30, analysts expect Morgan Stanley to report revenue of $13.2 billion, up from $12.9 billion during the same period last year, according to Refinitiv. Earnings-per-share should fall 16% year-over-year, to $1.28. For the past several quarters, Morgan Stanley’s investment banking business – once crucial to its bottom line – has been lagging on macroeconomic uncertainty. Companies have pulled back on mergers and acquisitions amid growing concerns that a recession is on the horizon. Indeed, the value of global M & A plunged 44% in the first five months of 2023, according to data analytics firm GlobalData . During a recent conference, Morgan Stanley executives said that capital markets will likely improve in 2024, potentially setting up its investment banking division for a stronger year. The bank said its “more confident now than any time this year about an improved outlook for 2024.” Morgan Stanley has adapted to the struggling M & A and initial-public-offering markets by leaning more into wealth management, a strategy we think highlights the bank’s ability to deftly navigate a range of headwinds . “Morgan Stanley is doing everything it can to be less of a bank and more of a financial advisor,” Jim said Wednesday. And, with Chief Executive Office James Gorman expected to retire early next year, we’ll be looking for any further guidance from the company on its succession plans. (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.

Bank stocks remain under pressure due to high interest rates as financial firms like Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) get ready to kick off earnings season. More

Higher rates are expected to lead to a jump in losses on banks’ bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.
KBW analysts Christopher McGratty and David Konrad estimate banks’ per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs.
Earnings season kicks off Friday with reports from JPMorgan Chase, Citigroup and Wells Fargo.

Jamie Dimon, Chairman of the Board and Chief Executive Officer of JPMorgan Chase & Co., gestures as he speaks during an interview with Reuters in Miami, Florida, U.S., February 8, 2023. 
Marco Bello | Reuters

American banks are closing out another quarter in which interest rates surged, reviving concerns about shrinking margins and rising loan losses — though some analysts see a silver lining to the industry’s woes.
Just as they did during the March regional banking crisis, higher rates are expected to lead to a jump in losses on banks’ bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.

KBW analysts Christopher McGratty and David Konrad estimate banks’ per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs.
“The fundamental outlook is hard near term; revenues are declining, margins are declining, growth is slowing,” McGratty said in a phone interview.
Earnings season kicks off Friday with reports from JPMorgan Chase, Citigroup and Wells Fargo.
Bank stocks have been intertwined closely with the path of borrowing costs this year. The S&P 500 Banks index sank 9.3% in September on concerns sparked by a surprising surge in longer-term interest rates, especially the 10-year yield, which jumped 74 basis points in the quarter.
Rising yields mean the bonds owned by banks fall in value, creating unrealized losses that pressure capital levels. The dynamic caught midsized institutions including Silicon Valley Bank and First Republic off guard earlier this year, which — combined with deposit runs — led to government seizure of those banks.

Big banks have largely dodged concerns tied to underwater bonds, with the notable exception of Bank of America. The bank piled into low-yielding securities during the pandemic and had more than $100 billion in paper losses on bonds at midyear. The issue constrains the bank’s interest revenue and has made the lender the worst stock performer this year among the top six U.S. institutions.
Expectations on the impact of higher rates on banks’ balance sheets varied. Morgan Stanley analysts led by Betsy Graseck said in an October 2 note that the “estimated impact from the bond rout in 3Q is more than double” losses in the second quarter.

Hardest-hit banks

Bond losses will have the deepest impact on regional lenders including Comerica, Fifth Third Bank and KeyBank, the Morgan Stanley analysts said.
Still, others including KBW and UBS analysts said that other factors could soften the capital hit from higher rates for most of the industry.
“A lot will depend on the duration of their books,” Konrad said in an interview, referring to whether banks owned shorter or longer-term bonds. “I think the bond marks will look similar to last quarter, which is still a capital headwind, but that there’ll be a smaller group of banks that are hit more because of what they own.”
There’s also concern that higher interest rates will result in ballooning losses in commercial real estate and industrial loans.
“We expect loan loss provisions to increase materially compared to the third quarter of 2022 as we expect banks to build up loan loss reserves,” RBC analyst Gerard Cassidy wrote in a Oct. 2 note.

Silver linings

Still, bank stocks are primed for a short squeeze during earnings season because hedge funds placed bets on a return of the chaos from March, when regional banks saw an exodus of deposits, UBS analyst Erika Najarian wrote in an Oct. 9 note.
“The combination of short interest above March 2023 levels and a short thesis from macro investors that higher rates will drive another liquidity crisis makes us think the sector is set up for a potentially volatile short squeeze,” Najarian wrote.
Banks will probably show stability in deposit levels in the quarter, according to Goldman Sachs analysts led by Richard Ramsden. That, and guidance on net interest income in the fourth quarter and beyond, could support some banks, said the analysts, who are bullish on JPMorgan and Wells Fargo.
Perhaps because bank stocks have been so beaten down and expectations are low, the industry is due for a relief rally, said McGratty.
“People are looking ahead to, where is the trough in revenue?” McGratty said. “If you think about the last nine months, the first quarter was really hard. The second quarter was challenging, but not as bad, and the third will be still tough, but again, not getting worse.” More

Leon Cooperman at the 2019 Delivering Alpha conference in New York on Sept. 19, 2019.
Adam Jeffery | CNBC

Billionaire investor Leon Cooperman said he remains a bear with little interest in the broader stock market, partly because it’s underestimating the risk of a fiscal crisis.
“I’m of the view that we borrow from the future with very profligate fiscal policy,” Cooperman said at CNBC’s Financial Advisor Summit. “Ultimately, we will have a crisis in public sector finance, and the market is not discounting a crisis. Overall, I expect very little from the market.”

The chair and CEO of the Omega Family Office said the unprecedented stimulus has pulled demand forward and created an artificial situation in the economy. The national debt of the U.S. recently reached a historic milestone by passing $33 trillion for the first time.
Given his long-term pessimism, Cooperman isn’t buying the stock market benchmarks. Instead, he’s hunting for bargains in individual names.

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“The market has been, as you know, extraordinary bifurcated. If you take out the Magnificent 7, the overall market has done nothing and maybe it’s down a little bit or flat,” Cooperman said. “I’m not interested in the S&P. I’m interested in individual stocks.”
He said he would be very surprised if the S&P 500 climbs above 4,600 anytime this year. The large-cap benchmark is still up about 13% this year, trading around 4,344.
The veteran investor said his advice for what to buy right now would be, in order of preference, his favorite cheap stocks, then short-dated Treasurys, and his least favorite would be long-term bonds. Some of his favorite value names are Canadian energy producers Tourmaline Oil and Paramount Resources. More

The consumer price index rose 3.7% in the 12 months through September, unchanged from August, the U.S. Bureau of Labor Statistics said Thursday.
Pandemic-era inflation peaked at 9.1% in June 2022, the highest rate since November 1981.
The Federal Reserve aims for a 2% annual inflation rate over the long term. Fed officials don’t expect that to happen until 2026.

Mario Tama | Getty Images

Inflation was unchanged in September, but price pressures seem poised to continue their broad and gradual easing in coming months, according to economists.
In September, the consumer price index increased 3.7% from 12 months earlier, the same rate as in August, the U.S. Bureau of Labor Statistics said Thursday.

The latest reading is a significant improvement on the Covid pandemic-era peak of 9.1% in June 2022 — the highest rate since November 1981.
“The speed of the decline is always going to be uncertain,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics. “But anywhere you look, [data] suggests inflation should be falling rather than rising.”

The CPI is a key barometer of inflation, measuring how quickly the prices of anything from fruits and vegetables to haircuts and concert tickets are changing across the U.S. economy.
Despite recent improvements, economists say it will take a while for inflation to return to normal, stable levels.
The Federal Reserve aims for a 2% annual inflation rate over the long term. Fed officials don’t expect that to happen until 2026.

“Ultimately, inflation is still the most menacing issue in the economy right now,” said Sarah House, senior economist at Wells Fargo Economics. “We’re edging our way back [to target], but there’s still quite a bit of ground to cover,” she added.

Gas prices still something consumers ‘contend with’

Gas prices were up 2.1% in September, on a monthly basis — a “major contributor” to inflation last month, the BLS said.
However, that’s a big improvement from August, when prices at the pump jumped 10.6% during the month largely due to dynamics in the market for crude oil, which is refined into gasoline.
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“It’s still something consumers have to contend with, but not as big an increase as what households were having to deal with in August,” House said.
Prices have fallen in October, too. The average price per gallon was $3.68 as of Oct. 9, down 15 cents a gallon since Sept. 25, according to the Energy Information Administration.

Housing inflation continues to move downward

When assessing underlying inflation trends, economists generally like to look at a measure that strips out energy and food prices, which tend to be volatile from month to month.
This pared-down measure — known as the “core” CPI — fell to an annual rate of 4.1% in September from 4.3% in August.
Shelter — the average household’s biggest expense — has accounted for more than 70% of that total increase in the core CPI over the past year. Housing inflation increased in September, to its highest monthly rate since May.

However, the housing-price trend “remains firmly downward,” and should continue to slow through roughly summer next year, House said.
“That will be an important source of the overall rate of disinflation as we move through 2024,” she said.
Other categories with “notable” increases in the past year include motor vehicle insurance (up 18.9%), recreation (up 3.9%), personal care (up 6.1%) and new vehicles (up 2.5%), the BLS said.

Why inflation is returning to normal

At a high level, inflationary pressures — which have been felt globally — are due to an imbalance between supply and demand.
Energy prices spiked in early 2022 after Russia invaded Ukraine. Supply chains were snarled when the U.S. economy restarted during the Covid-19 pandemic, driving up prices for goods. Consumers, flush with cash from government stimulus and staying home for a year, spent liberally. Wages grew at their fastest pace in decades, pushing up business’ costs.
Now, those pressures have largely eased, economists said.

Plus, the Federal Reserve has raised interest rates to their highest level since the early 2000s to cool the economy. This tool aims to make it more expensive for consumers and businesses to borrow, and therefore rein in inflation.
Average wage growth also declined to 4.4% in September, from a peak 9.3% in January 2022, according to Indeed data.
“Most of the evidence suggests the economy is still strong, but maybe cooling a bit,” Hunter said. “Labor market conditions are continuing to gradually cool as well.”
That said, there are a few potential sources of upward pressure on inflation, economists said. For example, the Israel-Hamas war has the potential to nudge up global energy prices. United Auto Workers strikes could elevate prices for cars if inventory declines. More

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CNBC’s Joumanna Bercetche is moderating a panel at the annual meetings of the International Monetary Fund and World Bank in Marrakech, Morocco.

Titled, “Reform Priorities for Tackling Debt,” the seminar will include Kristalina Georgieva, the managing director of the IMF, Ajay Banga, the president of the World Bank Group, Mohammad Al-Jadaan, the minister of finance for Saudi Arabia, Situmbeko Musokotwane, minister of finance for Zambia, and Anna Gelpern, professor of law and international finance at Georgetown Law
Subscribe to CNBC on YouTube.  More

Since Nov. 2022, global business leaders, workers and academics alike have been gripped by fears that the emergence of generative AI will disrupt vast numbers of professional jobs.
But the inputs that AI models receive, and the outputs they create, often need to be guided and reviewed by humans — and this is creating new paid careers and side hustles.
Prolific, a company that helps connect AI developers with research participants, has had direct involvement in providing people with compensation for reviewing AI-generated material.

The logo of generative AI chatbot ChatGPT, which is owned by Microsoft-backed company OpenAI.
CFOTO | Future Publishing via Getty Images

Artificial intelligence might be driving concerns over people’s job security — but a new wave of jobs are being created that focus solely on reviewing the inputs and outputs of next-generation AI models.
Since Nov. 2022, global business leaders, workers and academics alike have been gripped by fears that the emergence of generative AI will disrupt vast numbers of professional jobs.

Generative AI, which enables AI algorithms to generate humanlike, realistic text and images in response to textual prompts, is trained on vast quantities of data.
It can produce sophisticated prose and even company presentations close to the quality of academically trained individuals.
That has, understandably, generated fears that jobs may be displaced by AI.
Morgan Stanley estimates that as many as 300 million jobs could be taken over by AI, including office and administrative support jobs, legal work, and architecture and engineering, life, physical and social sciences, and financial and business operations. 
But the inputs that AI models receive, and the outputs they create, often need to be guided and reviewed by humans — and this is creating some new paid careers and side hustles.

Getting paid to review AI

Prolific, a company that helps connect AI developers with research participants, has had direct involvement in providing people with compensation for reviewing AI-generated material.

The company pays its candidates sums of money to assess the quality of AI-generated outputs. Prolific recommends developers pay participants at least $12 an hour, while minimum pay is set at $8 an hour.
The human reviewers are guided by Prolific’s customers, which include Meta, Google, the University of Oxford and University College London. They help reviewers through the process, learning about the potentially inaccurate or otherwise harmful material they may come across.
They must provide consent to engage in the research.
One research participant CNBC spoke to said he has used Prolific on a number of occasions to give his verdict on the quality of AI models.
The research participant, who preferred to remain anonymous due to privacy concerns, said that he often had to step in to provide feedback on where the AI model went wrong and needed correcting or amending to ensure it didn’t produce unsavory responses.
He came across a number of instances where certain AI models were producing things that were problematic — on one occasion, the research participant would even be confronted with an AI model trying to convince him to buy drugs.
He was shocked when the AI approached him with this comment — though the purpose of the study was to test the boundaries of this particular AI and provide it with feedback to ensure that it doesn’t cause harm in future.

The new ‘AI workers’

Phelim Bradley, CEO of Prolific, said that there are plenty of new kinds of “AI workers” who are playing a key role in informing the data that goes into AI models like ChatGPT — and what comes out.

As governments assess how to regulate AI, Bradley said that it’s “important that enough focus is given to topics including the fair and ethical treatment of AI workers such as data annotators, the sourcing and transparency of data used to build AI models, as well as the dangers of bias creeping into these systems due to the way in which they are being trained.”
“If we can get the approach right in these areas, it will go a long way to ensuring the best and most ethical foundations for the AI-enabled applications of the future.”
In July, Prolific raised $32 million in funding from investors including Partech and Oxford Science Enterprises.
The likes of Google, Microsoft and Meta have been battling to dominate in generative AI, an emerging field of AI that has involved commercial interest primarily thanks to its frequently floated productivity gains.
However, this has opened a can of worms for regulators and AI ethicists, who are concerned there is a lack of transparency surrounding how these models reach decisions on the content they produce, and that more needs to be done to ensure that AI is serving human interests — not the other way around.
Hume, a company that uses AI to read human emotions from verbal, facial and vocal expressions, uses Prolific to test the quality of its AI models. The company recruits people via Prolific to participate in surveys to tell it whether an AI-generated response was a good response or a bad response.
“Increasingly, the emphasis of researchers in these large companies and labs is shifting towards alignment with human preferences and safety,” Alan Cowen, Hume’s co-founder and CEO, told CNBC.
“There’s more of an emphasize on being able to monitor things in these applications. I think we’re just seeing the very beginning of this technology being released,” he added. 
“It makes sense to expect that some of the things that have long been pursued in AI — having personalised tutors and digital assistants; models that can read legal documents and revise them these, are actually coming to fruition.”

Another role placing humans at the core of AI development is prompt engineers. These are workers who figure out what text-based prompts work best to insert into the generative AI model to achieve the most optimal responses.
According to LinkedIn data released last week, there’s been a rush specifically toward jobs mentioning AI.
Job postings on LinkedIn that mention either AI or generative AI more than doubled globally between July 2021 and July 2023, according to the jobs and networking platform.

Reinforcement learning

Meanwhile, companies are also using AI to automate reviews of regulatory documentation and legal paperwork — but with human oversight.
Firms often have to scan through huge amounts of paperwork to vet potential partners and assess whether or not they can expand into certain territories.
Going through all of this paperwork can be a tedious process which workers don’t necessarily want to take on — so the ability to pass it on to an AI model becomes attractive. But, according to researchers, it still requires a human touch.
Mesh AI, a digital transformation-focused consulting firm, says that human feedback can help AI models learn mistakes they make through trial and error.
“With this approach organizations can automate analysis and tracking of their regulatory commitments,” Michael Chalmers, CEO at Mesh AI, told CNBC via email.
Small and medium-sized enterprises “can shift their focus from mundane document analysis to approving the outputs generated from said AI models and further improving them by applying reinforcement learning from human feedback.”
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U.K. regulator the Financial Conduct Authority announced on Thursday that it had decided to fine Staley £1.8 million ($2.21 million) and ban him from holding a senior management or significant influence function in the sector.
Staley stepped down as CEO of the British lender in November 2021 following the findings of an initial FCA probe into his characterization of his ties with the disgraced former financier.

Jes Staley, former CEO of Barclays, arrives at the offices of Boies Schiller Flexner LLP in New York on June 11, 2023.
Bloomberg | Bloomberg | Getty Images

LONDON — Former Barclays CEO Jes Staley on Thursday was fined and banned from holding any position of influence in the U.K. financial services industry for misleading the regulator over his relationship with sex offender Jeffrey Epstein.
U.K. regulator the Financial Conduct Authority announced on Thursday that it had decided to fine Staley £1.8 million ($2.21 million) and ban him from holding a senior management or significant influence function in the sector.

The FCA found that Staley “recklessly approved” a letter sent by Barclays to the regulator that contained two misleading statements about the nature of his relationship with Epstein and the point of their last contact.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said in a statement Thursday that a CEO “needs to exercise sound judgment and set an example to staff at their firm.”
“Mr Staley failed to do this. We consider that he misled both the FCA and the Barclays Board about the nature of his relationship with Mr Epstein,” Chambers said.
“Mr Staley is an experienced industry professional and held a prominent position within financial services. It is right to prevent him from holding a senior position in the financial services industry if we cannot rely on him to act with integrity by disclosing uncomfortable truths about his close personal relationship with Mr Epstein.”
Staley stepped down as CEO of the British lender in November 2021 following the findings of an initial FCA probe into his characterization of his ties with the disgraced former financier, who died by suicide in Manhattan’s Metropolitan Correctional Center after being charged with child sex trafficking.

The FCA asked Barclays in August 2019 to explain what it had done to satisfy itself that there was no impropriety in the relationship between the two men, and Staley approved a letter suggesting that they did not have a close relationship.
Emails subsequently emerged in which Staley described Epstein as one of his “deepest” and “most cherished” friends, the FCA confirmed. Barclays’ letter also claimed Staley had ceased contact with Epstein long before he joined the bank in December 2015. He was later discovered to have spoken to Epstein on Oct. 28, 2015. More

Politicos, rejoice. When it comes to elections, next year is a big one. In 2024 the Republicans and Democrats will battle it out in America, of course—but there will also be votes of one sort or another in Algeria, India, Mexico, Pakistan, Russia, South Africa, Taiwan, probably Britain, and many more countries besides. All told, as many as 3bn people, in countries producing around a third of global gdp, will have the chance to put an “X” in a box. And in many of these locations, populist politicians are polling well. What would their success mean for the global economy?Economists have long suspected that populists do grave damage. Names such as Salvador Allende in Chile and Silvio Berlusconi in Italy are hardly synonymous with economic competence. By contrast, what you might call “sensible” leaders, including, say, Konrad Adenauer in Germany and Bill Clinton in America, are more often associated with strong growth. New research, forthcoming in the American Economic Review, perhaps the discipline’s most prestigious journal, puts hard numbers on the hunch.The authors, Manuel Funke and Christoph Trebesch of the Kiel Institute for the World Economy and Moritz Schularick of the University of Bonn, look at over a century of data. They classify administrations as “populist” or “non-populist” (or what you might call sensible), based on whether the administration’s ideology has an “us-versus-them” flavour. This is inevitably an arbitrary exercise. People will disagree over whether this or that administration should really be classified as populist. Yet their methodology is transparent and backed up by other academic research.Mr Funke and colleagues then look at how various outcomes, including gdp growth and inflation, differ between the two types of regime. The trick is to identify the counterfactual—how a country under a populist government would have done under a more sensible regime. To do this, the authors create “doppelganger” administrations, using an algorithm to build an economy that tracks that country’s performance pre-populist governance. During Berlusconi’s tenure as prime minister for much of 2001 to 2011, for instance, the authors compare Italy’s economy to a phantom Italy mostly comprised of Cyprus, Luxembourg and Peru. The three countries share characteristics with the world’s eighth-largest economy, including a heavy reliance on international trade.Having identified 51 populist presidents and prime ministers from 1900 to 2020, the authors find striking results. For two to three years there is little difference in the path of real gdp between countries under populist and sensible leadership. For a time, it may seem as though it is possible to demonise your opponents and run roughshod over property rights without all that much consequence. Yet a gap eventually appears, perhaps as foreign investors start to look elsewhere. Fifteen years after a populist government has entered office, the authors find that gdp per person is a painful 10% lower than in the sensible counterfactual. Ratios of public debt to gdp are also higher, as is inflation. Populism, the authors firmly establish, is bad for the pocketbook.The results are comforting for those who believe in the importance of honourable politicians doing the right thing. But what if sensibles are not what they used to be? Although Mr Funke and his colleagues cannot judge the record of the most recent populist wave, some examples suggest the gap between sensibles and populists may not be as large as it was. Under President Donald Trump, the American economy largely beat expectations. Recep Tayyip Erdogan has stifled free speech in Turkey, but relative to comparable countries, real economic growth has been pretty strong. Under Narendra Modi, India’s economy is roaring ahead: this year its gdp is likely to grow by 6% or so, compared with global growth of around 3%. Under populist leadership, Hungary and Poland are not obviously doing worse than their peers.Given Mr Trump’s tariffs and Mr Erdogan’s unusual monetary policy, it is unlikely that these countries’ relative success is down to smart policymaking. Instead, their relatively strong performance may reflect the fact that countries with sensible leadership are finding growth harder to attain. In the 1960s Western countries, rebuilding from the second world war and with young populations, could hope to hit annual growth rates of 5% or more. The opportunity cost of poor economic management was therefore high. Today, in part because of older populations, potential growth is lower. As a result, the gap in gdp growth between a competent and an incompetent administration may be smaller.Yet sensible politicians are also dropping the ball. In the past they promised voters higher incomes, said how they would deliver them and then implemented the necessary policies. These days, politicians across the oecd club of mostly rich countries pledge half as many pro-growth policies as they did in the 1990s, according to your columnist’s analysis of data from the Manifesto Project, a research project. They also implement fewer: by the 2010s product- and labour-market reforms had practically ground to a halt. Meanwhile, politicians have put enormous blocks in the way of housing construction, helping raise costs and constraining productivity growth. Many focus their attention on pleasing elderly voters through generous pensions and funding for health care.Shades of greyPopulists are themselves unlikely to solve any of these problems. But what are the sensibles offering as an alternative? Technocratic, moderate governments need to regain their growth advantage. After all, a belief that maverick politicians will damage the economy is one of the main things standing in the way of more people voting for them. If scepticism about the economic competence of sensible governments deepens, it may seem like less of a risk to vote for a headbanger. Although, over the long sweep of history, economists are right to mock the economic policies of populists, today the sensibles need to get their house in order, too. ■Read more from Free exchange, our column on economics:To understand America’s job market, look beyond unemployed workers (Oct 5th)Why the state should not promote marriage (Sep 28th)Renewable energy has hidden costs (Sep 21st)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More