Economics
China in Recession; Yuan Depreciation Imminent
China is at the end-game of its great economic transformation. Multiple iterations of 5-year plans, and flawed central economic planning, created a massive build-up in debt that can no longer be continued. China’s debt fueled growth is understood, but the impact of the deleveraging phase is becoming evident in real time. Various estimates of China…
Read MoreCrude Rally Boxes Fed Into A Corner & China PMI Weakest Since 2012
This weekend’s Jackson Hole speeches, and subsequent commentary, outlined the guideposts for a Fed rate hike, potentially in September. The explosion in crude, if it holds for two more weeks, will pressure the Fed to hike. The Fed clearly highlighted the USD, employment, and oil, as drivers of inflation. The fast 10-point in rally in oil, from sub-$40,…
Read MoreStanley Fischer’s Jackson Hole Speech: Fed Determined to Lift-Off
Stanley Fischer delivered a critical speech this weekend at the Jackson Hole, Economic Symposium, outlining the Fed’s forward looking view on inflation and the potential for a lessening of factors that dampen inflation. This speech signals the Fed is staying the course and determined for rate hike lift-off on the advertised time-table. CJF interprets this…
Read MoreA tale of two growth rates; GDP and US corporate profits
Last week’s “second” 1Q14 GDP print revised to a -1.0% annualized growth rate relative to the prior print of +0.1%. The second 1Q14 GDP print was shrugged off, with equity markets rallying to new highs, in impressive fashion, given the seasonally low volumes around Memorial Day. While the 1Q14 print is still not “final” (there…
Read MoreApril employment report; strength broadens to lower-end
This month’s job report will rightly be questioned; late-winter/early spring weather for much of the country was horrible in February and March, and this morning’s report reflects payback from depressed activity making results appear better than they actually are. Nonetheless, trends in April, and thus far year-to-date, reflect a potentially important change in labor market…
Read MoreWealth Effect; gaining steam from asset returns and persistence
The ongoing economic tug-of-war remains tied. Growth spurts with better momentum (housing, auto, healthy corporate profits, job market) are almost immediately met by numerous automatic stabilizers (higher mortgage rates, deteriorating housing affordability, satiation of replacement cycles). But weighing the good and the bad, we are in a fine environment for the stock market. The environment…
Read MoreStudent debt bubble; should school loans be repaid, or not?
Tuesday’s WSJ presented an interesting cover story on student debt forgiveness. Push back is growing with respect to managing the amount of total debt forgiveness or capping it to a maximum amount; the article states $57,500 as potential forgiveness cap per student. Bubble aftermath is never pretty and the fascinating case of runaway US student…
Read MoreCrimea Annexation; the implications for global capital allocation
Around geopolitical events, political posturing is generally the short-term focus for all parties involved, and markets, but the longer-term implications are often unrelated to what is obvious in the short-term. The despotic approach of Vladimir Putin, and his “damn the torpedoes” approach to dealing with market/economic consequences exacerbates this effect. A fascinating take on…
Read MoreEurope’s Prisoner’s Dilemma – LTRO Needs to Continue for Years
European leaders have inadvertently created one of the financial world’s largest negative feedback mechanisms. By issuing long-term refinancing operations (LTRO) with cheap ECB funding for terms up to three years and encouraging European banks to take the funding and purchase assets such as sovereign debt, the ECB effectively has encouraged the European financial system to…
Read MoreDeja Déjà Vu – A Third Summer of European Crisis
Over the past week, it has become clear that a third annual conflagration throughout Europe is upon us. The crisis has morphed yet again, and like The Hydra, it has come back in a more menacing form. The issue this summer is more profound than the “sovereign debt crisis” which struck last summer. Last summer’s…
Read MoreLike QE, the ECB’s Long-Term Refinancing Operations Will Continue for Years
I came across an article in The Telegraph by Ambrose Evans-Pritchard which does a good job highlighting the circularity of the ECB’s LTRO and associated bond buying. As banks throughout Europe took advantage of ECB stimulus, which they were de facto encouraged to do by Mario Draghi and the ECB, it is clear that both…
Read MoreBernanke’s Labor Market Speech – The Case for Continued Accommodative Policy
Ben Bernanke made a highly referenced speech earlier this week, credited with fueling a sharp rally in the stock market. The speech is colorfully titled: “Recent Developments in the Labor Market” and is a worthwhile read for investors and those interested in the US economy. The speech highlights a growing controversy in the labor market…
Read MoreWelcome to the World, North Korea – Investment Opportunities Will Eventually Sprout
North Korea has been isolated since the disintegration of the Soviet Union in 1991. Significant amounts of communist aid ceased, and the fall of communism across Eastern Europe ultimately had a profound impact on the Democratic People’s Republic of Korea for the next two decades. North Korea was figuratively and literally off the grid as…
Read MoreThe Economic Process of Deleveraging Part Two – Why the US is Well Positioned
The differences between the US situation post-financial crisis and Japan in 1990 are stark. The previous post outlined how extreme things got in Japan and how ahead of itself the Japanese stock market, real estate market and economy got. While Japan was exposed to “extreme extremes” the US economy experienced imbalances that could be worked…
Read MoreThe Economic Process of Deleveraging Part One – What Happened in Japan?
The process of deleveraging has been in place since the onset of global recession and financial crisis in 2008. Many investors and economists have highlighted how long the process can take once it gets going. It’s striking how the theme of deleveraging, broadly speaking, is universally assumed to play out over a very long time.…
Read MoreWhen Greek Debt Servicing Resolves – Spain is the Key to the Eurozone Compact
The Spanish Empire reached the height of its powers in the 1500’s. Naval supremacy, decades of rapidly rising wealth, discovery of gold, and influence over the Catholic papacy led to Spain becoming a dominant world power. It wasn’t until Philip II and The Great Armada’s defeat against the English in the Anglo-Spanish War that Spain’s…
Read MoreGlobal Demographics – An Important Multi-Year Investment Theme
With much fanfare, estimates of the earth’s population recently surpassed 7 billion people. Population growth rates have been staggering for decades, for a number of reasons. The straightforward explanation is that global birth rates have remained high while there has been tremendous improvement in child mortality rates and life expectancy. Sewer system implementation in the…
Read More