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Category - Global Middle Class

    China Is Said to Offer Path to Eliminate U.S. Trade Imbalance

    This article from Bloomberg News may be of interest to subscribers. Here is a section:

    China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.

    By increasing annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.

    The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators who nonetheless asked the Chinese to do even better, demanding that the imbalance be cleared in the next two years, the people said.

    Economists who’ve studied the trade relationship argue it would be hard to eliminate the gap, which they say is sustained in large part by U.S. demand for Chinese products.

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    Outlook for 2019: The Game Has Changed

    Thanks to a subscriber for this report from KKR which may be of interest to subscribes. Here is a section:

    Philippine Bulls on a Roll as Overseas Stocks Funds Trickle Back

    This article by Ian Sayson for Bloomberg may be of interest to subscribers. Here is a section:


     

    Philippine bulls are on a roll, and who can blame them? The nation’s equities index has started the year beating many global peers, and foreign fund managers are putting back money in a market that was among Asia’s worst in 2018.

    Traders at Rizal Commercial Banking Corp. and AB Capital & Investment Corp. are riding the rally by deploying their cash, rather than cutting their stock holdings as they did last year whenever equities went into high gear. The Philippine Stock Exchange Index has rallied more than 6 percent in the first
    trading days of January, including a 2.8 percent gain Wednesday.

    It closed at an eight-month high, breaking a key resistance level and moving closer to the 8,000 that traders say it could surpass this quarter.

    “It’s a good strategy to ride the prevailing positive mood, even if only for the short term,” said Gerard Abad, who manages $380 million as chief investment officer at AB Capital. “We will see a continuation of the improvement in inflation, and it helps that the U.S. Fed has become dovish. That eases pressure on the central bank to raise rates.”

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    Delay Brexit? Ireland would not stand in the way

    This article by Guy Faulconbridge, Conor Humphries for Reuters may be of interest to subscribers. Here is a section:

    The Telegraph newspaper cited three unidentified EU sources as saying British officials had been “putting out feelers” and “testing the waters” on an extension of Article 50, which sets out the conditions for leaving the EU.

    Brexit Secretary Stephen Barclay denied the report and said London would not seek to extend the divorce while German Foreign Minister Heiko Maas said it was not time to discuss such a course. Ireland, though, said it would not stand in the way if Britain made such a request.

    “Certainly from an Irish perspective, if such an ask happens, we won’t be standing in the way on that,” Irish Foreign Minister Simon Coveney told journalists after a meeting with Maas in Dublin.

    “If it is the case that at some point in the future that the British government seeks an extension of Article 50, then that is something that will have to get consideration at an EU level,” Coveney said.

    Ireland’s economy would be hit hard by a disorderly Brexit and the most contentious part of May’s deal is an insurance plan aimed at preventing a hard border between the Irish Republic and Northern Ireland.

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    Indonesia Signals Return as Asia's Emerging Market of Choice

    This article by Ruth Carson for Bloomberg may be of interest to subscribers. Here is a section:
     

    Indonesia is often seen as an emerging market bellwether with its high yields, strong economic growth and a reformist government, with foreign investors holding about 40 percent of local-currency bonds. The direction of its markets may provide clues as to whether the stress that swept developing nations last year may be coming to an end.

    Federal Reserve Chairman Jerome Powell’s comments on Friday indicating a possible pause in rate hikes, an easing in China’s monetary policy, and hopes of improvement in trade tensions between Beijing and America have all combined to boost emerging markets on Monday.

    “The rupiah looks to be on that nice catch-down trade given the Goldilocks’ moment that markets are reveling in,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “Fed’s Powell humming all the right notes out of the markets song book has gone a long way” in boosting the rupiah, he said.

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    9 Grey Swans for 2019

    Thanks to a subscriber for this report from Nomura which may be of interest to subscribers. Here is a section:

    Brazilian Assets Soar as Bolsonaro Starts to Deliver on Promises

    This article by Mario Sergio Lima and David Biller for Bloomberg may be of interest to subscribers. Here is a sectionBrazilian Assets Soar as Bolsonaro Starts to Deliver on Promises

    In a speech at his swearing-in ceremony in Brasilia on Wednesday, Guedes promised a sweeping overhaul of the country’s state apparatus and business environment to unleash corporate potential and free future generations from debt.

    "Private-sector pirates, corrupt bureaucrats and creatures from the political swamp have conspired against the Brazilian people," he said. "Excessive spending has corrupted Brazil." Bolsonaro has tapped Guedes, a graduate of the University of Chicago, to manage economic policy in a country hamstrung by rising debt, a gaping fiscal deficit and slow growth. Bolsonaro won the October election by a wide margin as part of a popular backlash against crime, corruption and economic malaise.

    In his comments Wednesday, Guedes highlighted the urgency of the task ahead. "Our business class is chained down by interest rates, high taxes and labor costs," he said, adding that he believed the ideal tax burden would be around 20 percent of gross domestic product, rather than the current rate of 36
    percent.

    Earlier in the day, the new energy minister, Bento Albuquerque, said Brazil would deliver on plans to capitalize Eletrobras, prompting shares in the state-run company to jump as much as 9.7 percent. He added that he would seek a lower tax burden and few subsidies in the electricity sector.

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    To Help Put Recent Economic & Market Moves in Perspective

    Thanks to a subscriber for this note from Ray Dalio which may be of interest to subscribers. Here is a section:

    For all of the previously described reasons, the period that we are now in looks a lot like 1937.

    Tightenings never work perfectly, so downturns follow.  They are more difficult to reverse in the late stage of the long-term debt cycle because the abilities of central banks to lower interest rates and buy and push up financial assets are then limited.  When they can’t do that anymore, there is the end of the long-term debt cycle.  The proximity to the end can be measured by a) the proximity of interest rates to zero and b) the amount of remaining capacity of central banks to print money and buy assets and the capacity of these assets to rise in price.  

    The limitation in the ability to print money and make purchases typically comes about when a) asset prices rise to levels that lower the expected returns of these assets relative to the expected return of cash, b) central banks have bought such a large percentage of what there was to sell that buying more is difficult, or c) political obstacles stand in the way of buying more.  We call the power of central banks to stimulate money and credit growth in these ways “the amount of fuel in the tank.” Right now, the world’s major central banks have the least fuel in their tanks since the late 1930s so are now in the later stages of the long-term debt cycle.  Because the key turning points in the long-term debt cycle come along so infrequently (once in a lifetime), they are typically not well understood and take people by surprise.  For a more complete explanation of the archetypical long-term debt cycle, see Part 1 of “Principles for Navigating Big Debt Crises” (link).

    So, it appears to me that we are in the late stages of both the short-term and long-term debt cycles.  In other words, a) we are in the late-cycle phase of the short-term debt cycle when profit and earnings growth are still strong and the tightening of credit is causing asset prices to decline, and b) we are in the late-cycle phase of the long-term debt cycle when asset prices and economies are sensitive to tightenings and when central banks don’t have much power to ease credit.

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