Category Archive: 5) Global Macro

The Benefits of a Profoundly Shattering Recession

Does anyone really think The Everything Bubble can just keep inflating forever? What do I mean by a profoundly shattering recession? I mean, a systemic, crushing recession that can't be reversed with central bank magic, a recession that only deepens with time. The last real recession was roughly two generations ago in 1981; younger generations have no experience of a profound recession, and perhaps older folks have forgotten the shock, angst and...

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DM Equity Allocation Model For Q3 2019

We recently introduced our Developed Markets (DM) Equity Allocation model. Building on the success of our EM model, this new framework extends our analysis to cover 24 DM equity markets. Our analysis is meant to assist global equity investors in assessing relative sovereign risk and optimal asset allocation across countries within the DM universe.

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Germany’s Superstimulus; Or, The Familiar (Dollar) Disorder of Bumbling Failure

The Economics textbook says that when faced with a downturn, the central bank turns to easing and the central government starts borrowing and spending. This combined “stimulus” approach will fill in the troughs without shaving off the peaks; at least according to neo-Keynesian doctrine. The point is to raise what these Economists call aggregate demand.

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Our Wile E. Coyote Federal Reserve

Whatever the Fed chooses to do, it's already failed.. Wile E. Coyote has gotten a bad rap: in all fairness, his schemes are ingenious, if overly complicated, and it's not his fault that the Acme detonator misfires or the Road Runner doesn't respond as predicted. Every set-up to nail the Road Runner should work. That it fails and leaves him suspended over the cliff for a woefully brief second to intuit his impending doom really isn't his fault.

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Dollar Firm Ahead of Jackson Hole

FOMC minutes were not as dovish as many had hoped; bond and equity markets are set up for a big reset. Today sees the start of the annual Fed symposium in Jackson Hole; the US reports a slew of data. Markit flash eurozone August PMI readings were reported; ECB publishes the account of its July 25 meeting.

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Brazilian real stands out in EM currency scorecard

Prospects for emerging-market currencies look cloudy. The currencies of countries with sound external buffers and limited exposure to global trade should fare relatively better than others.In recent months, the global environment has become more challenging for EM currencies. Trade tensions have increased and are weighing on economic activity. Commodity prices have also fallen.

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That Can’t Be Good: China Unveils Another ‘Market Reform’

The Chinese have been reforming their monetary and credit system for decades. Liberalization has been an overriding goal, seen as necessary to accompany the processes which would keep the country’s economic “miracle” on track. Or get it back on track, as the case may be. Authorities had traditionally controlled interest rates through various limits and levers.

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Some Brief European Leftovers

Some further odds and ends of European data. Beginning with Continent-wide Industrial Production. Germany is leading the system lower, but it’s not all just Germany. And though manufacturing and trade are thought of as secondary issues in today’s services economies, the GDP estimates appear to confirm trade in goods as still an important condition and setting for all the rest.

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Retail Sales’ Amazon Pick Up

The rules of interpretation that apply to the payroll reports also apply to other data series like retail sales. The monthly changes tend to be noisy. Even during the best of times there might be a month way off trend. On the other end, during the worst of times there will be the stray good month. What matters is the balance continuing in each direction – more of the good vs. more of the bad.

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US Industrial Downturn: What If Oil and Inventory Join It?

Revised estimates from the Federal Reserve are beginning to suggest another area for concern in the US economy. There hadn’t really been all that much supply side capex activity taking place to begin with. Despite the idea of an economic boom in 2017, businesses across the whole economy just hadn’t been building like there was one nor in anticipation of one.

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The Path Clear For More Rate Cuts, If You Like That Sort of Thing

If you like rate cuts and think they are powerful tools to help manage a soft patch, then there was good news in two international oil reports over the last week. The US Energy Information Administration (EIA) cut its forecast for global demand growth for the seventh straight month. On Friday, the International Energy Agency (IEA) downgraded its estimates for the third time in four months.

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Why You Should Care Germany More and More Looks Like 2009

What if Germany’s economy falls into recession? Unlike, say, Argentina, you can’t so easily dismiss German struggles as an exclusive product of German factors. One of the most orderly and efficient systems in Europe and all the world, when Germany begins to struggle it raises immediate questions about everywhere else.

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Developed market equities update: a fairly reassuring reporting season

There is an ongoing tug-of-war between trade tensions and fundamentals Due to renewed trade tensions, the S&P 500 corrected by 6.0% and the Stoxx Europe 600 by 5.8% from the late July peak to the 5 August low. Because the pullback was clustered around just a few days, its intensity was reminiscent of the worst market days of past major crises.

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The Internal War in the Deep State Claims Its High Profile Casualty: Jeffrey Epstein

The "traditionalist" Neocons are going to have to decide to fish or cut bait. I've been writing about the fracturing Deep State for the past five years: The conflict has now reached the hot-war stage where bodies are turning up, explained away by the usual laughable covers: "suicide," "accident" and "heart attack." That Jeffrey Epstein's death in a secure cell is being labeled "suicide" tells us quite a lot about the desperation of the faction...

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The Myth of CNY DOWN = STIMULUS Won’t Die

On the one hand, it’s a small silver lining in how many even in the mainstream are beginning to realize that there really is something wrong. Then again, they are using “trade wars” to make sense of how that could be. For the one, at least they’ve stopped saying China’s economy is strong and always looks resilient no matter what data comes out.

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The US labels China a currency manipulator

The near-term impact will likely be limited but this is a clear negative for trade negotiations.Shortly after the renminbi’s sharp depreciation on Monday, the US Treasury Department labelled China a currency manipulator. This is the first time in 25 years that the US government has designated a country as a currency manipulator.According to the US Treasury Department, the decision was triggered by the perceived lack of action by the PBoC to resist...

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Currency update – the Chinese renminbi

Despite the CNY's recent fall, we believe the People's Bank of China will refrain from competitive devaluationFollowing US President Donald Trump’s announcement of a new 10% tariff on USD300 billion of Chinese goods, the Chinese renminbi (rmb) weakened sharply and breached CNY7.00 per USD.

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The Gulag of the Mind

Befuddled and blind, we wander toward the cliff without even seeing it, focusing on our little screens of entertainment and self-absorption. There are no physical barriers in the Gulag of the Mind--we imprison ourselves, and love our servitude. Indeed, we fear the world outside our internalized gulag, because we've absorbed the narrative that the gulag is secure and permanent.

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BoJ stays put amid economic headwinds

Japan's central bank has little room for further easing despite a downbeat outlook.At its monetary policy meeting on 30 July, the Bank of Japan (BoJ) decided to keep its monetary policy unchanged, as expected. The decision came as the Japanese economy faces strong external headwinds and a downbeat outlook for domestic demand.

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Nothing Is Guaranteed

There are no guarantees, no matter how monumental the hubris and confidence. The American lifestyle and economy depend on a vast number of implicit guarantees-- systemic forms of entitlement that we implicitly feel are our birthright. Chief among these implicit entitlements is the Federal Reserve can always "save the day": the Fed has the tools to escape either an inflationary spiral or a deflationary collapse.

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