Email of the day on China's energy challenges
You mentioned the energy shortages in China. These two articles from the Daily Telegraph spell out the scale and the implications globally. Best wishes to you and family
David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class
Email of the day on Rolls Royce
Dear Eoin, could you kindly update us on Rolls Royce, e.g.: Worth buying more on this surge? Sell and buy back on inevitable dip after rumours regarding nuclear reactor subside? Thank you very much, very best,
Email of the day on investing for inflation:
Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?
Roubini Says He's "Dr. Realist" by Warning of Global-Debt Trap
Thanks to a subscriber for this article which may be of interest. Here is a section:
“My concern is that we are in a debt trap,” Roubini, chairman and chief executive officer of Roubini Macro Associates, said in an exclusive interview on Bloomberg TV at the Greenwich Economic Forum in Connecticut. “When central banks are going to want to essentially phase out unconventional monetary policy, given the debt ratios, there is the risk of a crash in the bond market, in the credit market, in the stock market, in the economy and therefore they’ll be in that debt trap and unable to normalize policy rates.”
When the Covid-19 pandemic started to strangle the global economy, easy monetary policies and stimulative fiscal policies were seen as necessary to “backstop the financial system,” Roubini said. But the results have been extreme.
“We are in a debt super cycle,” he said. “And eventually, central banks are in a trap. People said they are going to normalize policy rates, but with these levels of private and public debt, if they were trying to do that, there will be a market crash, an economic crash, and therefore, I think the path of least resistance is going to be to wipe out the real value of nominal debt at fixed-interest rates with higher inflation.”
Email of the day on slower Chinese growth:
Think, you may find interesting this Financial Times story that looks into the longer-term consequences of Evergrande saga - https://on.ft.com/3io45gH (open link). It seems that the Chinese real estate market finally (at long, long last) is crumbling, not without help of the country leaders. If it is so and given the fact that the property market accounts for 29% of the Chinese GDP (and land sales to developers, for the third of local governments’ revenues), the economic growth seems to slow dramatically in the coming years. What could be implications, in your view? We all remember that China and its industrialization were the major drivers of the global commodities supercycle in the 21st century. Also, every time China has got into trouble, the Communist party used the same recipe “more investments in infrastructure and construction, more leverage. If now China and its property sector grow much more slowly, not to mention possible contraction of the latter, it will need much less metals and materials, and also possibly less gas (to power plants and send it to homes) and even oil (fewer working trucks and construction equipment). What do you think?
Fed Signals Bond-Buying Taper May Start Soon, Split on 2022 Hike
This article from Bloomberg may be of interest to subscribers. Here is a section:
If progress toward the Fed’s employment and inflation goals “continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted,” the U.S. central bank’s policy-setting Federal Open Market Committee said Wednesday in a statement following a two-day meeting.
The Fed also published updated quarterly projections which showed officials are now evenly split on whether or not it will be appropriate to begin raising the federal funds rate as soon as next year, according to the median estimate of FOMC participants. In June, the median projection indicated no rate increases until 2023.
And
Projections for 2024 were also published for the first time, with the median suggesting a federal funds rate of 1.8% by the end of that year. The median for 2023 rose to 1%, from 0.6% in the June projection.
Priciest Food Since 1970s Is a Big Challenge for Governments
This article from Bloomberg may be of interest to subscribers. Here is a section:
Adjusted for inflation and annualized, costs are already higher now than for almost anytime in the past six decades, according FAO data. Indeed, it’s now harder to afford food than it was during the 2011 protests in the Middle East that led to the overthrow of leaders in Tunisia, Libya and Egypt, said Alastair Smith, senior teaching fellow in global sustainable development at Warwick University in the U.K.
“Food is more expensive today than it has been for the vast majority of modern recorded history,” he said.
Key U.K. Power Cable Will Be Partly Knocked Out Until March
This article from Bloomberg may be of interest to subscribers. Here is a section:
A key U.K. power cable knocked out by a fire will stay partly offline until March, National Grid Plc said, deepening the energy crisis threatening Britain as it heads into winter.
The timing couldn’t be worse. The U.K. is already struggling with shortages, with gas and power prices breaking records day after day. The energy crunch is fueling concerns about inflation and a potential hit to businesses just as the economy emerges from the worst impact of the pandemic. How the U.K. fares through the winter now hinges in large part on the weather.
Email of the day on Modern Monetary Theory
Hope you are well in Dallas.
I have a question: why do you often mention that we have MMT in action right now?
MMT is not a policy adopted by government or central banks. They don’t “do mmt”
MMT is a theoretical framework that tries to explain how the monetary system works in a freely convertible and fiat currency system in which we have been living for 50 years now (and it explains it correctly to a large part in my opinion). it’s not the “policy ode making debt”. Isn’t it?
When you mention “MMT in action” you likely refer to the government demand for goods, services and the grant of subsidies / social securities payment / medicare /unemployment benefit to people etc. along with the debt issuance “to pay for” this spending. Finally the FED buying the government debt to “ease” the monetary conditions (the QE vs tapering).
But this is not “MMT”. Government spending has always existed and it is the second largest component of a country GDP (after “C” , private consumption). Look at the development of the US federal debt since the early 80es to the almost USD 28tn in 2021 / today. It does not matter who administered the country (super conservative or super liberal), they have all managed to expand the debt. And the market has always absorbed the “debt”. Have they been “doing MMT” for 40 years?
Thank you for your regular market updates... always appreciated
Brazil's Bolsonaro: Only God will remove me from power
This article from the BBC may be of interest to subscribers. Here is a section:
But mounting pressure from several investigations and calls for his impeachment have led to the president's rhetoric becoming ever more belligerent.
The rallies he convened for independence day were seen as an attempt to demonstrate he can still draw huge crowds of supporters after recent polls had him trailing his left-wing rival Luiz Inácio Lula da Silva by nine percentage points.While elections are not due to be held until October 2022, Mr Bolsonaro's approval ratings have also dropped to an all-time low.
A poll by the Atlas Institute suggested that 61% of Brazilians described his government's performance as bad or very bad, up from 23% when he first took office in January 2019.
While an attempt to impeach the president over his handling of the Covid crisis was blocked by the speaker of the lower house of Congress, Mr Bolsonaro is portraying himself as under attack from Congress and the Supreme Court.
Last week, he told evangelical leaders - who are among his staunchest backers - that "I have three alternatives for my future: being arrested, killed or victory".
And he again took up that theme in his speech on independence day, saying that "only God will oust me".