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MOST CRITICAL TIPPING POINT ARTICLES TODAY
CHINA - China's Restoration
In case it was not clear where all the jobs went (if not swallowed up by productivity enhancing robots) - the following chart should make things clear (over 200 years of manufacturing shifts around the world)...
01-21-13
CHINA
4
4 - China Hard Landing
GLOBAL GDP - Growth Trending Down by Region and Cummulatively
In an increasingly globalised economy, we need more global data measurement.
The Economist presents a new attempt to measure global GDP. The sub-bars are showing each region’s contribution to global GDP growth, rather than their internal growth rate:
Globally, there was a big and swift return to strong GDP growth, built on the backs of emerging countries and particularly the BRICs. Since early 2010, rather than getting stronger and stronger, global growth has actually become weaker and weaker.
This is quite a departure from certain narratives popular today that suggest that growth has gotten stronger and stronger since the end of the recession, that we are almost out of the woods, and that we are on the cusp of a new era of spectacular growth.
And in a world of globalised trade, globalised lending, and global supply chains the notion that any nation can really be shielded from the ongoing effects of declining global growth seems extremely over-optimistic.
Yet another reason to be highly cautious of the increasingly popular idea that now is the time to turn bullish on American equities.
01-21-13
INDICATORS
GROWTH
GLOBAL MACRO
MERCANTILISM - China the Clear Winner Globally, Germany Regionally
It is no secret to anyone that as we said some 3 years ago, the world is now engaged in all out currency warfare whose sole goal is destroying one's own currency faster and more brutally than "the other guy" can. Because while devaluing one's currency is imperative in order to return to a viable debt load, about $40 trillion less than where it is now (as per BCG) by pushing monetary inflation upon one's people and inflating said debt away, just as important is to stimulate one's economy and exports which, all else equal, can only be done by making them cheaper to one's trading partners. It is, after all, a zero sum world.
This is precisely the tug of war that the developed world is caught in currently, where every attempt is made to talk down one's currency, and when that fails, to dilute it by printing more of it (the Fed), to backstop it with collateral of every lower quality (the ECB, although in Europe's case it is more of an involuntary phenomenon), or just to talk, and talk, ant talk (Japan).
Yet while every country with a self-respecting central bank (i.e., currency printer) hopes that they will be the ultimate winner of the currency debasement export race, what has become obvious over the past 30 years, is that when it comes to specializing in exports, there is just one true winner: a winner which is self-evident from the chart below.
So the question becomes: while everyone is scrambling for the peanuts and breadcrumbs of marginal exports while injecting trillions, then quadrillions, then quintillions and so on, to make their exports "attractive", is China merely sitting on the sidelines and smiling, knowing well that when it comes to Ricardian dynamics, there is nobody who can ever catch up or slow down its momentum, benefiting from a (still) cheap labor force that is second to none, and an unprecedented work ethic (the lack of a social safety net does miracles for motivation), even if every country destroys their economy in the process of trying to catch up?
Of course, when every other country's economy implodes, that means the traditional Chinese export partners will no longer exist, and the country will finally have no choice but ending its mercantilist ways, and actually focusing on internal growth. But China, like the US in so many other things, will only cross that particular bridge when it has no other choice.
01-21-13
INDICATORS
GROWTH
GLOBAL MACRO
HUMOR - It can only be FUNNY IF there is some degree of broadly recognizable TRUTH in it
“Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear. They’ve got you by the balls.
They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting fucked by a system that threw them overboard 30 fucking years ago.
It’s a big club and you ain’t in it! You and I are not in the Big Club. By the way, it’s the same big club they use to beat you in the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy. The table is tilted folks, the game is rigged. And nobody seems to notice, nobody seems to care. That’s what the owners count on, the fact that Americans are and will probably remain willfully ignorant of the big red, white, and blue dick that’s being jammed up their assholes every day. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.” –George Carlin
YOU MAY FIND THIS VIDEO OFFENSIVE.
PAY PARTICULAR ATTENTION TO HOW THE AUDIENCE REACTS - They sense the TRUTH
01-21-13
THESIS
STATISM
FINANCIAL REPRESSION - Morgan Stanley: 'the situation is hopeless'
MORGAN STANLEY has an interesting (but, alas, privately distributed) research note on the debt crisis arguing that most developed governments are effectively insolvent. It draws up a stylised balance sheet for a government: its assets are the ability to tax (the discounted value of future tax revenues), plus real assets (buildings, equipment), equity stakes and cash. On the liabilities side, there are the market debts (bonds and bills) and the net present value of future "primary" expenditure (items such as pensions and health care). Now, one could surely push tax revenues up a bit in some countries (where they are lower than average) and bring down spending on the health and pensions items.
Morgan Stanley reckons:
the shortfalls are so large (between 800% and 1,000% of GDP in the US and UK) that the situation is hopeless.
In effect, the public sector must impose a burden on the private sector but the only question is how. Greece has already had to opt for outright default.
Those countries that can borrow in their own currencies will opt for financial repression—keeping interest rates negative in real terms.
When financial repression was practised after the second world war, there were
Foreign exchange controls,
Outright caps on interest rates,
Restrictions on the ability to buy gold and much besides.
At the moment, real interest rates are negative; in part, this is down to central bank purchases of government bonds but it is also the result of investors' desire for safe-haven assets. The paradox is that central banks (and governments) would like risk appetites to return to normal, but not if this means a sharp rise in government bond yields.
As Morgan Stanley points out, financial repression was associated with quite benign outcomes after the second world war. The economy steadily grew its way out of the debt. But the big difference with today is that although post-1945 governments were burdened by war debts, the private sector was relatively unlevered; now both sectors carry high debt. This makes it much more difficult to grow your way out of the crisis. As Japan shows, you can hold rates near zero for ages without prompting companies or consumers to borrow.
The implications for investors, says the bank are that
With fixed income yields at record lows due to financial repression, we prefer equities over bonds. However, with yields likely to stay low for a long time because of repression, we wouldn’t make a major move out of bonds, as significant losses are unlikely.
01-21-13
THESIS
FINANCIAL REPRESSION
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Jan 20th - Jan 26th, 2013
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