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Perspectives on the global economic changes

The Technology & Economic Forum is a venue to discuss issues pertaining to Technological and Economic developments in India. We request members to kindly stay within the mandate of this forum and keep their exchanges of views, on a civilised level, however vehemently any disagreement may be felt. All feedback regarding forum usage may be sent to the moderators using the Feedback Form or by clicking the Report Post Icon in any objectionable post for proper action. Please note that the views expressed by the Members and Moderators on these discussion boards are that of the individuals only and do not reflect the official policy or view of the Bharat-Rakshak.com Website. Copyright Violation is strictly prohibited and may result in revocation of your posting rights - please read the FAQ for full details. Users must also abide by the Forum Guidelines at all times.
Austin
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Re: Perspectives on the global economic changes

Postby Austin » 14 Jul 2017 10:22

David Stockman‏ @DA_Stockman

Video: Yellen blames the labor force participation crisis on ... opioids, technology, outsourcing, education, suicide, drugs ... everything but .

https://twitter.com/DA_Stockman/status/ ... 8418905088

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Re: Perspectives on the global economic changes

Postby panduranghari » 15 Jul 2017 14:12

Phillips curve and Sharpe ratio- the 2 most useless indices if there were any. I am not saying this. Its Helene Miesler. https://explosiveoptions.net/option-tra ... ndicators/

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Re: Perspectives on the global economic changes

Postby Austin » 15 Jul 2017 18:34

David Stockman‏ @DA_Stockman 19h19 hours ago

Memo To Fed: Asset Bubbles Are The New Inflation


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Re: Perspectives on the global economic changes

Postby Gyan » 17 Jul 2017 17:21

High asset prices also keeps economy stagnant. Eg, high price of houses mean less will be sold and low interest rates do not compensate for 3-5times rise

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Re: Perspectives on the global economic changes

Postby Austin » 17 Jul 2017 18:17

David Stockman‏ @DA_Stockman

Chart of The Day: US Stocks Since March 2009—-Investors Sell, Companies Buy


Image

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Re: Perspectives on the global economic changes

Postby Austin » 17 Jul 2017 18:18

So this a kind of share buy back happening where companies are buying back their own share to gain majority of share of the companies from the investors ...Is this case of Investors Lack of Confidence or Companies Confidence to get back its share from investors so that it can keep max profit ?

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Re: Perspectives on the global economic changes

Postby panduranghari » 18 Jul 2017 12:26

A friend of mine who works as a manager of a mutual fund said many of his friends are darned bored with no market action. Most allocations are happening in ETF's. So many managers he knows off work 3 days a week. Take 4 days off and do something else. Portends to what the future holds for the industry.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 18 Jul 2017 20:16

John Bogel and his alums ate their lunch. No wonder Carl Icahn's of the world are constantly bad mouthing ETFs. Personally I sold my mutual funds 7years ago. Haven't bought one since. However that article on ETFs you posted and distortions w.r.t. Price discovery in the market is real. Interesting where it leads to. For example, Pakistan has decent share in the Frontier market ETFs and the author correctly highlighted if the buyers know what they are getting into.

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Re: Perspectives on the global economic changes

Postby Austin » 18 Jul 2017 20:41

David Stockman‏ @DA_Stockman

Burden of Proof Now Shifts to Bond Bulls


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Re: Perspectives on the global economic changes

Postby Austin » 20 Jul 2017 19:16

It is informercial but David Stockman has good data points


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Re: Perspectives on the global economic changes

Postby Austin » 21 Jul 2017 13:09

David Stockman‏ @DA_Stockman

Chart of the Day: Bond Vol Now At All Time Low


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Re: Perspectives on the global economic changes

Postby Austin » 21 Jul 2017 13:14

David Stockman‏ @DA_Stockman

Chart of the Day: Share Buybacks, Not Earnings Growth


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Re: Perspectives on the global economic changes

Postby A_Gupta » 24 Jul 2017 05:15

The secret history of the banking crisis of 2007-08:
https://www.prospectmagazine.co.uk/maga ... ing-crisis

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Re: Perspectives on the global economic changes

Postby Austin » 02 Aug 2017 13:12

No Bubble in Stocks But Look Out When Bonds Pop, Greenspan Says

https://www.bloomberg.com/news/articles ... nspan-says

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Re: Perspectives on the global economic changes

Postby Austin » 08 Aug 2017 18:32

Gundlach, Wary of Pricey Market, Sets Cap on DoubleLine's Growth

https://www.bloomberg.com/news/articles ... e-s-growth

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Re: Perspectives on the global economic changes

Postby Austin » 11 Aug 2017 10:22

The Bear is Hungry...

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Re: Perspectives on the global economic changes

Postby Austin » 11 Aug 2017 15:09

Ray Dalio, manager of the world's largest hedge fund, says buy gold on rising North Korea risk
Bridgewater Associates founder Ray Dalio says in a LinkedIn blog post "risks are now rising" in the market and recommends gold as a hedge.
He cited increasing geopolitical tensions between the U.S. and North Korea.
The firm manages about $160 billion, according to its website.

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Re: Perspectives on the global economic changes

Postby Manish_Sharma » 11 Aug 2017 15:20

^ would it effect price of gold in Bharat too?

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Re: Perspectives on the global economic changes

Postby Austin » 11 Aug 2017 17:34

If global Gold Prices go up then yes it will affect our prices as well as India is one of the largest importer of Gold

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Re: Perspectives on the global economic changes

Postby Austin » 14 Aug 2017 08:59

David Stockman‏ @DA_Stockman Aug 11

Top's In! Tesla's $1.8B of zero-covenant bonds at 5.25% is rank insanity. Worst Goldman junk deal ever. SHAME! http://bit.ly/2dSZcwK

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Re: Perspectives on the global economic changes

Postby Austin » 15 Aug 2017 23:01

Americans' debt level notches a new record high
NEW YORK (Reuters) - Americans' debt level notched another record high in the second quarter, after having earlier in the year surpassed its pre-crisis peak, on the back of modest rises in mortgage, auto and credit card debt, where delinquencies jumped.

Total U.S. household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago, according to a Federal Reserve Bank of New York report published on Tuesday.

The proportion of overall debt that was delinquent, at 4.8 percent, was on par with the previous quarter. However a red flag was raised over the transitions of credit card balances into delinquency, which the New York Fed said "ticked up notably."

Loosening lending standards have allowed borrowers with lower credit scores to access credit cards, Andrew Haughwout, an in-house economist, said in the report.

"The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress," he said.

Total U.S. indebtedness is about 14 percent above the trough of household deleveraging brought on by the 2007-2009 financial crisis and deep recession, a pull-back that interrupted what had been a 63-year upward trend.

Mortgage debt was $8.69 trillion in the second quarter, up $329 billion from last year, the report said. Student loan debt was $1.34 trillion, up $85 billion, while auto loan debt came in at $1.19 trillion, up $55 billion.

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Re: Perspectives on the global economic changes

Postby Austin » 17 Aug 2017 11:38

Bannon Breaks Silence: Vows "Economic War With China"

http://www.zerohedge.com/news/2017-08-1 ... ic-war-chi
“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path.”

“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we're five years away, I think, ten years at the most, of hitting an inflection point from which we'll never be able to recover.”

Bannon’s plan of attack includes: a complaint under Section 301 of the 1974 Trade Act against Chinese coercion of technology transfers from American corporations doing business there, and follow-up complaints against steel and aluminum dumping.

“We’re going to run the tables on these guys. We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”

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Re: Perspectives on the global economic changes

Postby Austin » 17 Aug 2017 11:39

Panduranghari , Something to Chew with Statistics

The Everything Bubble: Stocks, Real Estate & Bond Implosion - Mike Maloney




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Re: Perspectives on the global economic changes

Postby panduranghari » 21 Aug 2017 15:25

Austin wrote:Panduranghari , Something to Chew with Statistics

The Everything Bubble: Stocks, Real Estate & Bond Implosion - Mike Maloney




Everything bubble was the term coined by Jesse Felder. If you are on twitter, I strongly recommend you follow him. He is ex Bear Sterns. Very insightful guy. Of course his best buddy is John Hussman of Hussman funds who is like the uber bear. But his bearish thesis is backed by solid data and he writes well. Free commentary on hussman funds website. Do follow him on twitter too.

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Re: Perspectives on the global economic changes

Postby Austin » 24 Aug 2017 13:49

Will do so panduranghari , Thanks


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Re: Perspectives on the global economic changes

Postby shyam » 28 Aug 2017 21:08

Fitch: Debt Limit, Government Funding to Test US Policy Makers
Fitch Ratings-New York-23 August 2017: US politicians face two deadlines in the coming weeks regarding government funding and the federal debt limit, which will demonstrate their capacity for coherent fiscal policymaking and cooperation, Fitch Ratings says. If the debt limit is not raised in a timely manner prior to the so-called "x date" Fitch would review the US sovereign rating, with potentially negative implications. We have previously said that prioritising debt service payments over other obligations if the limit is not raised - if legally and technically feasible - may not be compatible with 'AAA' status.

Congress must also agree on spending levels for FY18 to prevent a government shutdown in October. The House has passed appropriations bills, which will form the basis for a joint budget resolution. A government shutdown would not have a direct impact on the US's 'AAA' rating, but it would highlight how political divisions pose challenges to the budgetary process.

The federal debt limit was re-imposed in March and the Congressional Budget Office (CBO) estimates that the Treasury is likely to exhaust "extraordinary measures" (reaching the "x date") in October. Brinkmanship over the debt limit could ultimately have rating consequences, as failure to raise it would jeopardise the Treasury's ability to meet debt service and other obligations.

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Re: Perspectives on the global economic changes

Postby Austin » 01 Sep 2017 15:47

US net liability is around $250 Trillion and not $20 trillion if one counts the entitlements says Mitch Feierstein


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Re: Perspectives on the global economic changes

Postby Austin » 01 Sep 2017 21:21

Mitchell Feierstein: Systemic banking fraud means next crisis will be worse

https://www.standard.co.uk/business/mit ... 18286.html
Henry Paulson. Hank. Remember him? Of the crisis in 2008, he said: “Where I come from, if someone takes a risk and they’re going to make the profit from that risk, they shouldn’t have the taxpayer pay for the losses.”

Quite the wisdom one expects from the 74th US Secretary of the Treasury.

Yet, as Paulson (pictured) played pass the parcel with the rest of us, it was he who unwrapped the final layer when the music stopped, and discovered that the prize within was a grenade.

Understandable, therefore, that he offered a second opinion somewhat in contrast to his first: “It’s better to have the taxpayer pay for the losses than have the United States of America become an economic wasteland. If the financial system collapses, it’s really, really hard to put it back together again.”

Well, it did, and it was. Two years after the fall of Lehman Brothers, former Federal Reserve chairman Alan Greenspan was still reflecting on the solution. “There are two fundamental reforms we need — to get adequate capital and… far higher levels of enforcements of… fraud statutes.”

So what progress has been made in the efforts to reduce the risks of another crisis?

Not enough. In a letter this year to Bank of England’s Governor, Mark Carney, (in his capacity as chairman of the Financial Stability Board), the Senior Supervisors Group reported that “firms’ progress toward consistent, timely, and accurate reporting of top counterparty exposures fails to meet supervisory expectations”.

It said there is still too little reform, and too little essential knowledge of counterparty risk.

But what of Greenspan’s assertions of criminal behaviour in financial markets?

Again, no change. Market manipulation is not a conspiracy theory. The Bank of Japan has manoeuvred its bond market to a point where bond futures no longer trade. Its interventions have distorted free-market pricing mechanisms to the point that risk is virtually impossible to quantify.

But the most pressing concern is the behaviour of central banks, which had previously appeared a solid safe haven.

Recently, the Official Monetary and Financial Institutions Forum think-tank revealed that global central banks have speculated with $29 trillion (£23 trillion) in global markets, including stock markets.

I may have been absent that day but since when were central banks given discretion to trade and speculate to such an extreme? How effective can they be at managing the risk of others?

The European Central Bank’s Asset Quality Review is underway and seeks to review the provisions set aside by banks. But AQR is an unhelpful distraction. The exercise has understandably placed further pressure on all banks to bolster their capital positions.

But in preparation for the stress tests, most European banks have been furiously strengthening their balance sheets, increasing the likelihood that they will avoid the spotlight of attention, but masking more fundamental weaknesses.

These stress tests are useless if the ECB fails adequately to measure, calculate and quantify derivatives exposures, counterparty risk and a default on “risk-free” risky eurozone bonds.

Across the pond, the Federal Reserve doesn’t look in good shape either. The toxic assets it has bought remain under wraps and it has helped to create a false financial environment. Its 0% interest rate policy has flooded the planet. Cheap dollars have funded bad investments. Inflation has been stoked. Real wages have sunk. Asset prices have ballooned.

The Fed’s 1913 charter needs immediate, drastic revision. And a transparent independent audit is essential, to include the Fed’s activities in the physical gold, swaps and derivatives markets.

How financially robust a world do we have where flats in London sell for millions despite the average salary in Britain sitting at £27,600 per year?

A quick look at the upper echelons of the major central banks reveals a chummy elite club full of former investment bankers, advisers to mismanaged administrations and bosses looking after their previous employers.

Bank fraud is still the reality about which Greenspan warned us, and major global lenders in question have become so big they’re nigh on impossible to prosecute, or so rich they can act with impunity.

Recent examples include JPMorgan which paid $20 billion in fines in 2013 (when chief executive Jamie Dimon’s 2014 compensation was increased nearly 75%), Bank of America which settled for fines of $12 billion, Citibank ($10 billion), Goldman Sachs ($121 million), BNP ($10 billion).

Too big to fail, jail, bail or prosecute is simply too big to exist. Unregulated, systemic banking fraud, a lack of enforcement and failure to properly manage counterparty risk will soon cause the next collapse.

The recipe was ever thus: equal measures of greed and speculation, blind-bake, heat on full power. Here we go again, cooking up another pie, hoping it will taste better than the last one.

“Insanity: doing the same thing over and over again and expecting different results.” Well, Einstein, here’s a new theory: relatively speaking, the risk is 40% bigger than it was in 2008, bigger institutions, bigger transgressions, bigger fines. And this time, the central banks want a slice of the pie, making this an exponentially larger feeding frenzy that can only end with indigestion.

Our only chance for salvation is an injection of honesty and governance into politics. Voters will not keep blindly electing politicians on rhetoric and spin, but that doesn’t mean the outcome will be an improvement. The swing to the right in the recent European elections suggests more than a protest vote.

Someone once alerted me to the Bohica syndrome. Bohica? I asked.

He sneered: “Bend Over, Here It Comes Again.”

Mitchell Feierstein is a hedge fund manager and chief executive of Glacier Environmental Fund

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Re: Perspectives on the global economic changes

Postby Austin » 04 Sep 2017 15:14

Ruchir Sharma -- Global Growth Markets


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Re: Perspectives on the global economic changes

Postby Austin » 04 Sep 2017 16:24

Ruchir Talk is good but the comment on that youtube link sums it up well
Herb Levin 10 hours ago

Thank God he does not worry about the United States debt and bubbles in every sector. Lol

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Re: Perspectives on the global economic changes

Postby Austin » 12 Sep 2017 17:26

Doug Casey | I'm Increasingly Misanthropic


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Re: Perspectives on the global economic changes

Postby Austin » 16 Sep 2017 23:40

David Stockman -- 15 Sept 2017 -- DOW hits all time high. This market is fantasy land


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Re: Perspectives on the global economic changes

Postby disha » 17 Sep 2017 23:57

Austin wrote:David Stockman‏ @DA_Stockman Aug 11

Top's In! Tesla's $1.8B of zero-covenant bonds at 5.25% is rank insanity. Worst Goldman junk deal ever. SHAME! http://bit.ly/2dSZcwK


I never trust the YumBeeA's and eCONomists and financial analcysts. I actually had one yum-bee-a moaning about the cost of lithium rising and stating "lithium is the new oil" and telling me how rare it is. Without batting an eyelid*.

There is a reason why Tesla's stock is going up. Here is the situation., by 2040 - petrol/diesel based automobiles will be gone. All of it gone. It will be EV technology and if history is any indicator, the next displacement of EV tech will not occur at least until 2150. And further, half of the autos sold will use Tesla tech completely or parts of it and guess what., Tesla will be supplying the "energy" to drive the cars.

Basically you have a Ford model-T equivalent happening., and hence the pile up on the Tesla stock/bond.

*Lithium is one of the most abundant metal in Earth's crust and unlike oil it is not a one-time use - you do not "expend lithium to drive your car"!

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Re: Perspectives on the global economic changes

Postby Austin » 18 Sep 2017 18:20

disha wrote:There is a reason why Tesla's stock is going up. Here is the situation., by 2040 - petrol/diesel based automobiles will be gone. All of it gone. It will be EV technology and if history is any indicator, the next displacement of EV tech will not occur at least until 2150. And further, half of the autos sold will use Tesla tech completely or parts of it and guess what., Tesla will be supplying the "energy" to drive the cars.


I would be wary of any prediction that extends beyond 5 years of any kind including economy & technology , Hence what would happen to economy in 2050 or technology by 2040 is something i wont hazard a guess.

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Re: Perspectives on the global economic changes

Postby Austin » 21 Sep 2017 21:35

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth
Full S&P text below.

People's Republic Of China Ratings Lowered To 'A+/A-1'; Outlook Stable

OVERVIEW

China's prolonged period of strong credit growth has increased its economic and financial risks.
We are therefore lowering our sovereign credit ratings on China to 'A+/A-1' from 'AA-/A-1+'.
The stable outlook reflects our view that China will maintain its robust economic performance and improved fiscal performance in the next three to four years.
RATING ACTION

On Sept. 21, 2017, S&P Global Ratings lowered the long-term sovereign credit ratings on China to 'A+' from 'AA-' and the short-term rating to 'A-1' from 'A-1+'. The outlook on the long-term rating is stable. We have also revised our transfer and convertibility risk assessment on China to 'A+' from 'AA-'.

The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China's economic and financial risks. Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.

The recent intensification of government efforts to rein in corporate leverage could stabilize the trend of financial risk in the medium term. However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.

OUTLOOK

The stable outlook reflects our view that China will maintain robust economic performance over the next three to four years. We expect per capita real GDP growth to stay above 4% annually, even as public investment growth slows further. We also expect the stricter implementation of restrictions on subnational government off-budget borrowing to lead to a declining trend in the fiscal deficits, as measured by changes in general government debt in terms of GDP.

We may raise our ratings on China if credit growth slows significantly and is sustained well below the current rates while maintaining real GDP growth at healthy levels. In this scenario, we believe risks to financial stability and medium-term growth prospects will lessen to lift sovereign credit support.

A downgrade could ensue if we see a higher likelihood that China will ease its efforts to stem growing financial risk and allow credit growth to accelerate to support economic growth. We expect such a trend to weaken the Chinese economy's resilience to shocks, limit the government's policy options, and increase the likelihood of a sharper decline in the trend growth rate.

RATIONALE

The ratings on China reflect our view of the government's reform agenda, growth prospects, and strong external metrics. On the other hand, we weigh hese strengths against certain credit factors that are weaker than what is typical for similarly rated peers. For example, China has lower average income, less transparency, and a more restricted flow of information.

Institutional and economic profile: Reforms to budgetary framework and financial sector in progress
China's policymaking has helped it to maintain consistently strong economic performances since the late 1970s.
We project China's per capita GDP to rise to above US$10,000 by 2019, from a projected US$8,300 for 2017.

The Chinese government is taking steps to bolster its economic and fiscal resilience. We view the government's anti-corruption campaign as a significant move to improve governance at state agencies, local governments, and state-owned enterprises (SOEs). Over time, this could translate into greater confidence in the rule of law, improvements in the private-sector business environment, more efficient resource allocation, and a stronger social contract.

The government continues to make significant reforms to its budgetary framework and the financial sector. These changes could yield long-term benefits for China's economic development. The government also appears to be signaling that it will allow SOEs with lesser policy importance to exit the market either through merger, closure, or default in order to allocate resources more efficiently. More recently, it has also indicated financial stability as a top policy priority and is acting to rein in growth of public sector borrowing. However, we believe some local government financing vehicles, despite their diminishing importance, continue to fund public investment with borrowings that could require government resources to repay in the future.

China's policymaking has helped it to maintain consistently strong economic performances since the late 1970s. However, coordination issues between the line ministries and the State Council sometimes lead to unpredictable and abrupt policy implementation. The authorities also have yet to develop an effective communication channel with the market to convey policy intent, heightening financial volatility at times. Moreover, China does not benefit from the checks and balances usually coming from the free flow of information. These characteristics can lead to the misallocation of resources and foster discontent over time.

We expect China's economic growth to remain strong at close to 5.8% or more annually through at least 2020, corresponding to per capita real GDP growth of above 5.4% each year. We also expect credit growth in China to outpace that of nominal GDP over much of this period.


We project China's per capita GDP to rise to above US$10,000 by 2019, from a projected US$8,300 for 2017, given our assumptions about growth and the continued strength of the renminbi's real effective exchange rate. Over the next three years, we expect final consumption's contribution to economic growth to increase. However, we believe the gross domestic investment rate is likely to remain above 40% of GDP.


Flexibility and performance profile: External profile remains key strength

We expect financial assets held by the public and financial sectors to exceed total external debt by more than 90% of current account receipts (CAR) at the end of 2017. At the same time, we estimate China's total external assets will exceed its external liabilities by 65% of its CAR.

In 2017-2020, we project the increase in general government debt in each of these years at 2.8%-4.9% of GDP. We project net general government debt will fall toward 46% of GDP in the period to 2020 and interest cost to government revenue will remain below 5% throughout the forecast horizon.


We believe China's monetary policy is largely credible and effective. We believe the liberalization of deposit rates at banks in recent years is an important reform that could further improve monetary transmission in China.

China's external profile remains a key credit strength despite the recent decline of its foreign exchange reserves. We partly attribute the fall in reserves in 2016 to increased expectations of renminbi depreciation. Consequently, some private sector firms reduced or hedged their dollar debt and exporters kept a greater share of their proceeds in foreign exchange. We also attribute the accommodation of SOE and private-sector demand for foreign exchange as a willingness of officials to diversify China's external assets away from holdings of U.S. government debt to other investments of the financial and private sectors.

China remains a large external creditor. We expect financial assets held by the public and financial sectors to exceed total external debt by more than 90% of current account receipts (CAR) at the end of 2017. At the same time, we estimate that China's total external assets will exceed its external liabilities by 65% of its CAR. China's external liquidity position is equally robust. We expect the country to sustain its current account surplus at more than 2% of GDP in 2017-2020. We project annual gross external financing needs in 2017-2020 to total less than 60% of CAR plus usable reserves.


The increasing global use of the renminbi (RMB) also bolsters China's external financial resilience. According to the Bank for International Settlements' (BIS) "Triennial Central Bank Survey," published 2016, the renminbi was traded in 4% of foreign exchange transactions globally. We therefore assess the RMB as an actively traded currency. Demand for renminbi-denominated assets from both official and private-sector creditors could rise with the inclusion of the renminbi in the IMF's Special Drawing Rights basket of currencies.


We expect the share of renminbi-denominated official reserves to rise over time. If the renminbi achieves reserve currency status (which we define as more than 3% of aggregated allocated international foreign exchange reserves), it could strengthen external and monetary support for the sovereign ratings. Although the People's Bank of China (the central bank) does not operate a fully floating foreign exchange regime, it has allowed greater flexibility in the nominal exchange rate over the past decade. Based on estimates from the BIS, the real effective exchange rate has appreciated by close to 10% since the end of 2011. Any future weakness of the renminbi needs to be analyzed in this light.

China is gradually implementing an ambitious fiscal reform to improve fiscal transparency, budgetary planning and execution, and subnational debt management. These reforms could help the government to manage slower growth of fiscal revenue and lower its reliance on revenue from land sales.

In 2017-2020, we expect the Chinese government to keep the reported general government deficit close to, or below, 2.5% of GDP. However, off-balance-sheet borrowing could continue for the next two to three years. This reflects both the financing needs of public works started before 2015 as well as some new projects that the central government is willing to authorize to support growth. Consequently, we project the increase in general government debt in each of these years at 2.8%-4.9% of GDP.

We now include the entire sum of nearly RMB25 trillion (US$3.9 trillion, or approximately 36% of 2015 GDP) of government-related debt from local government financing vehicles in general government debt. We have also included the debts of China Railway Corp. in general government debt. The company was previously the Ministry of Rail but was incorporated as a special industrial enterprise. Bonds issued by the company are held on China banks' books at a lower capital charge compared with other corporate debt.


We offset these debts to compute net general government debt with fiscal deposits held by the government, net assets of the China Investment Corp. and net assets of the National Council of Social Security Funds. Using this method, we project net general government debt will fall toward 46% of GDP in the period to 2020 and interest cost to government revenue will remain below 5% throughout the forecast horizon. These forecasts in turn follow from our assumptions regarding real growth and ample domestic liquidity keeping financing cost low for the government.

Although the fiscalization of the local government financing vehicles and China Rail Corp. has raised our figure for general government debt, it has simultaneously decreased our estimates for contingent liabilities to the government from this sector. Entities with weak financial metrics owe much of the financing vehicle loans that are being redeemed through government bond issuance. By putting these loans on the government's balance sheet, the government has significantly reduced the banks' credit risks, in our view.

We believe China's monetary policy is largely credible and effective, as demonstrated by its track record of low inflation and its pursuit of financial sector reform. Consumer price index inflation is likely to remain below 3% annually over 2017-2020. Although the central government--through the State Council--has the final say in setting interest rates, we find that the central bank has significant operational independence, especially regarding open-market operations. These operations affect the economy through a largely responsive interbank market and a sizable and fast-expanding domestic bond market. The liberalization of deposit rates at banks in recent years is an important reform that could further improve monetary transmission in China.

Austin
BRF Oldie
Posts: 19465
Joined: 23 Jul 2000 11:31

Re: Perspectives on the global economic changes

Postby Austin » 22 Sep 2017 11:30

QT1 Will Lead to QE4 Jim Rickards

There are only three members of the Board of Governors who matter: Janet Yellen, Stan Fischer and Lael Brainard. There is only one Regional Reserve Bank President who matters: Bill Dudley of New York. Yellen, Fischer, Brainard and Dudley are the “Big Four.”

They are the only ones worth listening to. They call the shots. The don’t like dots. Everything else is noise.

Here’s the model the Big Four actually use:

1. Raise rates 0.25% every March, June, September and December until rates reach 3.0% in late 2019.

2. Take a “pause” on rate hikes if one of three pause factors apply: disorderly asset price declines, jobs growth below 75,000 per month, or persistent disinflation.

3. Put balance sheet normalization on auto-pilot and let it run “on background.” Don’t use it as a policy tool.

Simple.

What does this model tell us about a rate hike in December?

Disinflation has been strong and persistent. The Fed’s main metric for this (core PCE deflator year-over-year) has dropped from 1.9% in January to 1.4% in July. The August reading comes out on September 29. This time series is moving strongly in the wrong direction from the Fed’s perspective. This is what caused the September “pause” (which we predicted for readers last March).

After seven months of decline, one month of increase, if it comes, will not be enough to get the Fed to end the pause. It would take at least two months of increases to change the Fed’s mind.

That’s unlikely given the impact of Hurricanes Harvey and Irma. Those effects may be temporary, but they come at exactly the time when the Fed was looking for a turnaround in core inflation. They won’t get it. The pause goes on.

How do I know this?

For one thing, the Fed explains this all the time. It’s just that the media won’t listen; they’re too busy chasing dots.

But this was also explained to me in detail by the ultimate Fed insider. I call him, “The Man Without a Face,” and I identify him by name in chapter six of my New York Times bestseller, The Road to Ruin.

It’s true that Stan Fischer is leaving the board soon, but the White House has been in no hurry to fill vacancies. The Big Four will still be The Big Three (Yellen, Dudley and Brainard) when the December meeting rolls around and the analysis will be the same.

Eventually the markets will figure this out. Right now, markets are giving a 70% chance of a rate hike in December based on CME Fed Funds futures. That rate will drop to below 20% by Dec. 13 when the FOMC meets again with a press conference. (There’s another meeting on Nov. 1, but no one expects any policy changes then).

Now, with respect to quantitative tightening (QT), the same way they tapered QE, they’re going to “taper” QT. This time however, they’re going to taper upward. Meaning they’re going to go from $10 billion a month not being rolled over to $20 billion, $30 billion, etc.

Eventually, the amount of securities they don’t roll over will go up until the balance sheet controlled by the Fed comes down to the targeted figure. The projection is that it could take five years to achieve. The problem is we might not make it that far before the entire system collapses.

We’re in a new reality. But the Fed doesn’t realize it.

Here’s what the Fed wants you to believe…

The Fed wants you to think that QT will not have any impact. Fed leadership speaks in code and has a word for this which you’ll hear called “background.” The Fed wants this to run on background. Think of running on background like someone using a computer to access email while downloading something on background.

This is complete nonsense. They’ve spent eight years saying that quantitative easing was stimulative. Now they want the public to believe that a change to quantitative tightening is not going to slow the economy.


They continue to push that conditions are sustainable when printing money, but when they make money disappear, it will not have any impact. This approach falls down on its face — and it will have a big impact.

Markets continue to not be fully discounted because they don’t have enough information. Contradictions coming from the Fed’s happy talk wants us to believe that QT is not a contractionary policy, but it is.

My estimate is that every $500 billion of quantitative tightening could be equivalent to one .25 basis point rate hike. The Fed is about to embark on a policy to let the balance sheet run down.

The plan is to reduce the balance sheet $30 billion in the fourth quarter of 2017, then increase the quarterly tempo by an additional $30 billion per quarter until hitting a level of $150 billion per quarter by October 1, 2018.


Under that estimate, the balance sheet reduction would be about $600 billion by the end of 2018, and another $600 billion by the end of 2019.

That would be the equivalent of half a .25 basis point rate hike in each of the next two years in addition to any actual rate hikes.

While they might attempt to say that this method is just going to “run on background,” don’t believe it.

The decision by the Fed to not purchase new bonds will be just as detrimental to the growth of the economy as raising interest rates.

The Fed’s QT policy that aims to tighten monetary conditions, reduce the money supply and increase interest rates will cause the economy to hit a wall, if it hasn’t already.

The economy is slowing. Even without any action, retail sales, real incomes, auto sales and even labor force participation are all declining. Every important economic indicator shows that the U.S. economy is slowing right now. When you add in QT, we may very well be in a recession very soon.

Because they’re getting ready for a potential recession where they’ll have to cut rates yet again. Then it’s back to QE. You could call that QE4 or QE1 part 2. The Fed has essentially trapped itself into a state of perpetual manipulation.


The problem continues to be that the stock market is overpriced for this combination of higher rates and slower growth.

The one thing to know about bubbles is they last longer than you think and they pop when you least expect it. Under such conditions, it’s usually when the last guy throws in the towel that the bubble pops. We’re not there yet.

Is this thing ready to pop? Absolutely, and QT could be just the thing to do it.

I would say the market is fundamentally set up for a fall. When you throw in the fact that the Fed continues to have no idea what they’re doing, and has taken a dangerous course anyway, I expect a very severe stock market correction coming sooner than later.

As market perceptions catch up with reality, the dollar will sink, the euro and gold will rally, and interest rates will resume their long downward slide.


Do you have your gold yet?

Regards,

Jim Rickards


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