Category Archives: International

Miagra

Apparently I was wrong to say the 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.

Crude Remarks

WTI crude is down sharply today after an EIA report that showed substantial increases in inventories of both products and crude itself. Inventories remain well above historical ranges, close to or at record levels.

US production has been increasing steadily and a slowing economy appears to be sapping end-user demand. However, one presumes that most if not all domestic producers have taken advantage of crude’s prolonged OPEC-supported trading in the $50 range to sell their output forward, either in the futures market or by private contract. So for the time being they are more or less indifferent to the market price.

The question is, who is holding the bag for all that $50 crude – obliged to buy at that price or just looking at tanks of the stuff. When do they decide to liquidate their positions before $40 crude becomes $30 and then $20?

Bubble Blowers

Res ipse loquantur.

Why I Like The Dutch

Mario Draghi visited the Dutch parliament today and received an “unenviable grilling” from Dutch MPs for nearly two hours which, as the FT said, left the usually implacable Italian confrontational and riled up as tempers flared.

At the end of the meeting, the Dutch gave Draghi a gift – a tulip.

At least someone still has a sense of humor.

Consumer Prices

Everybody has a bias when it comes to measuring price inflation. Reports like the Devonshire one come out quite frequently, usually complaining that the government indexes understate inflation. They all say, well the numbers don’t reflect reality. The problem is, they don’t know what reality is any more than the government does. My reality and the next person’s are completely different because we buy different things. Cheap loans have allowed universities to raise prices in an outrageous fashion – but our kids have long since graduated so it doesn’t affect me, although anyone putting kids through college is being eviscerated. Consumers react to prices. Technology changes. Quality changes. Fashions change. And so on. All these things make any index pretty much useless, except for making political arguments. So one has to ask, in the famous words of Ms. Clinton – “What difference does it make?”

If you ask someone in Venezuela right now, of course, you would get an expletive for an answer. There is massive consumer price inflation because there are not enough consumer goods to meet demand, and so people are going hungry and without toilet paper. They are driving up prices, trying to outbid one another to compete for what little supply there is. But even in that desperate situation, there is no agreement on what consumer prices actually are, even by disinterested parties. The only way to fix the problem in Venezuela is to get goods back on the shelves. If the Venezuelan government can do that, then consumer prices will reflect the value of the bolivar and general world price levels.

There’s your clue. If you want to measure consumer prices, it is easy. Just use the Big Mac, as the Economist does. It works. 2016 USA Big Mac price inflation was 2.6%. Venezuela Big Mac prices in bolivars:

July 2014: 75

December 2014: 245

July 2015: 485

December 2015: 940

December 2016: 3550

Looks like a pretty decent metric. It tells you what you need to know – there’s a big problem.

But the economy does not run on Big Macs, and I’m interested in the inputs, not the outputs so much. And those are labor and energy. Nothing else much matters.

Timber!

I’m holding to my opinion that CADUSD will see 0.65 before 1.00, and here’s a little confirmation bias.

I’m Yelling Timber! CAD’s Going Down!

In addition to the collapse of the housing bubble, commodity prices, especially energy, are going to take a hit. And that could be right now – it looks like the oil longs – the hedgies – are already getting nervous about OPEC’s ability and/or willingness to sacrifice their cash flows in order to bolster the oil price.

Trumpets

Markets are all excited because Trump declared that the dollar is “too strong” and Ms Yellen is “not toast.” Not crumpet either, I would say, and Trump clearly knows his crumpet.

The End Of Hope

I had hoped that Donald Trump’s presidency would see some change in Washington. The attack on Syria finally dashed this hope.  The neocons’ campaign to demonize Russia has shaken his confidence to the point that they are now back in charge. This is a catastrophe, for which there is no one to blame but Trump.

Almost as seriously, presumably at the urging of the Goldmanites, he has not only failed to even attempt to slow the financial bubble, of which his pre-election statements show he is well aware, but has cynically relished it as proof of his success. This failure is likely to be his downfall.

We are so screwed. Sauve qui peut.