Category Archives: International

The R Word

From highly respected Ned Davis Research via Zero Hedge:

Expect a global recession. It either has begun or will begin shortly. Though no guarantee, as 7.89% of the time since 1970 when the global economic indicators that make up this model were above 70, a recession did not occur.

Let’er Rip, Potato Chip

Larry Kudlow, newly minted economic advisor, was on CNBC last night, advising that the Fed should “Let the economy rip.”

Larry, if you want to see what happens when a country monetizes its deficits, look south.

A Little Late

Maybe a few folks at the BIS now realize that the light at the end of the tunnel is, in fact, a train.

The previous analysis suggests that there is a prima facie case for monetary policy to pay closer attention to the financial cycle than in the past. We may have been underestimating the influence of benign disinflationary forces and overestimating the ability of monetary policy to fine-tune inflation, especially to push it up towards targets in the face of powerful headwinds. If so, we may also have been underestimating the collateral damage that such strategies may generate in terms of financial and macroeconomic stability over longer horizons, especially by amplifying the financial cycle.

Inflation Is About To Disappear

The main factor is U.S. oil production,” the IEA said. “In just three months to November, crude output increased by a colossal 846 kb/d, and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.

DACA

The Trump administration announced the end of the DACA program, that allows undocumented immigrants who arrived as children to obtain work permits.

The administration’s point is that the program, established by the Obama administration, was a direct violation of black-letter law and exceeded the President’s authority. Like many other immigrant-friendly policies, of course. True enough, but one can reasonably hope that Congress will act to change the law and the administration has provided time to allow that to happen, if it will.

The good reason for acting is that these people are the innocent victims of their parents’ bad acts and should not be penalized for them. Many have little or no connection with their country of birth and may not even speak the language. The bad reason for acting that is being bandied about is the resultant shortage of workers for low-wage jobs. The shortage has nothing to do with immigration and everything to do with the “welfare trap,” which makes it foolish for many Americans to seek employment because the withdrawal of benefits will more than offset any wage income they might receive.

To fix the shortage, the government needs to remove the trap.

That Which Is Not Seen

Alhambra Partners

After tax, corporate profits are still slightly less in Q2 2017 than in Q4 2014, and barely more (+3.4%) than in Q1 2012 five years ago.

SocGen’s Albert Edwards:

Our Ice Age thesis has always called for US and European 10 year bond yields to converge with Japan. We still expect that to happen, with the downward crash in US yields likely to be particularly shocking. There is mounting evidence that underlying US CPI inflation has already slid into outright deflation in exactly the same way that Japan did seven years after its credit bubble burst. Hence we repeat our call for US 10y bond yields to ultimately converge with Japan and Germany at around minus 1%.

In short, stocks are grossly overvalued and Treasury bonds are similarly undervalued. Not news, of course, just some confirmation bias.

Nothing To See Here

The dip-buyers and volatility-sellers are quickly reversing the overnight selloff, due to the Korean missile crisis.

These strategies work until they don’t. The absolute lack of fear is totally consistent with market tops.

The good news is that Treasuries are holding on to most of their overnight gains. When the bond and stock markets disagree, the bond market is usually right.

Miagra

Apparently I was wrong to say that EU officials weren’t talking about the African fertility crisis:

“The biggest migration movements are still ahead: Africa’s population will double in the next decades. A country like Egypt will grow to 100 million people, Nigeria to 400 million. In our digital age with the internet and mobile phones, everyone knows about our prosperity and lifestyle.” — German Development Minister Gerd Müller.

“Young people all have cellphones and they can see what’s happening in other parts of the world, and that acts as a magnet.” — Michael Møller, Director of the United Nations office in Geneva.

“If we do not manage to solve the central problems in African countries, ten, 20 or even 30 million immigrants will arrive in the European Union within the next ten years.” — Antonio Tajani, President of the European Parliament

Extreme Crazy

I was going to say Peak Crazy, but we all know things can always get crazier. Some things that spring to mind.

Political craziness: Mob violence on left and right, blatant defiance of federal law by city politicians, attempts to rewrite or at least deny history, demonization of Trump, Putin and anybody associated with them, and so on. Immigration in Europe – it’s that 4.7 kids per woman in Africa that nobody dares to talk about. Not to mention the crazy fat kid.

Fiscal craziness: Federal funding of runaway price increases, notably in university tuition, prescription drugs but also many other subsidized goods and services. Gross under-funding of state and local pension schemes even under ludicrous assumptions about future returns.

Monetary craziness: Central banks threatening to tighten but pumping away, consumer credit at record highs in US and elsewhere (Canada, that’s you I’m talking about with highest household debt in the world), government deficits keep growing. Subprime crdiet still gowing while defaults rise. Most of all, ICOs. People pouring money into blockchain-based tokens. Really?

Market craziness: Housing bubbles in China, Canada, Australia, UK and some US cities. Massive (record) risky speculation in many markets – short vol, long crude for example. Setups (risk parity) similar to portfolio insurance (remember 1987?).

I could go on. But I won’t. I’m just grumbling while I wait.

A Bit Of Math

Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of the deadly numbers with a sobering tweet:

A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.