It's BAD, it's STILL very bad REPRISE thread (13 months on)
Discussion
loafer123 said:
Low inflation, low interest rates and low unemployment...not exactly awful.
I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
Fiddled figures (selective reporting), poor returns with a debt mountain and more fiddled figures (zero hour contracts/more people in "education" or "training")... not exactly great.I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
In what way are things really better than they were?
MG-FIDO said:
loafer123 said:
Low inflation, low interest rates and low unemployment...not exactly awful.
I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
Fiddled figures (selective reporting), poor returns with a debt mountain and more fiddled figures (zero hour contracts/more people in "education" or "training")... not exactly great.I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
In what way are things really better than they were?
As a linky, this one deserves to be here!
The idea does make sense, as after all the system cannot operate without the numbers getting bigger (growth), and imbalances need to be plugged too.
AEPgraph said:
World economy so damaged it may need permanent QE
Markets are realising that the five-and-a-half year recovery since the financial crisis may already be over, says Ambrose Evans-Pritchard
http://www.telegraph.co.uk/finance/economics/11165...Markets are realising that the five-and-a-half year recovery since the financial crisis may already be over, says Ambrose Evans-Pritchard
The idea does make sense, as after all the system cannot operate without the numbers getting bigger (growth), and imbalances need to be plugged too.
turbobloke said:
MG-FIDO said:
loafer123 said:
Low inflation, low interest rates and low unemployment...not exactly awful.
I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
Fiddled figures (selective reporting), poor returns with a debt mountain and more fiddled figures (zero hour contracts/more people in "education" or "training")... not exactly great.I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
In what way are things really better than they were?
2013BRM said:
turbobloke said:
MG-FIDO said:
loafer123 said:
Low inflation, low interest rates and low unemployment...not exactly awful.
I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
Fiddled figures (selective reporting), poor returns with a debt mountain and more fiddled figures (zero hour contracts/more people in "education" or "training")... not exactly great.I know that the lack of wage growth, high debt levels, deficits etc aren't good, but it is certainly better than it was.
In what way are things really better than they were?
ECHASL
RichardD said:
The idea does make sense, as after all the system cannot operate without the numbers getting bigger (growth), and imbalances need to be plugged too.
Effectively, this is borrowing more through the means of the denominator effect being manipulated by QE - kind of what Beppo Grillo wants for Italy, by means of returning to the Lira.Which is why, at some point, commodities like gold - once they stop being manipulated - might not be such a bad bet. Especially now NY is considering it's own version of the pie-a-terre tax on luxury apartments. One less place for all the funny BRIC money going to hide.
Probably not actual QE, more like continual soft default, eg the state running away from its obligations, to the extent the only thing you may get in future is your bins emptied. Every single thing else will cost. £££££££ or you won't get. The general population don't seem tough enough for a dose of real inflation, so partial default it will be, pushing the pension age forward being a favourite.
turbobloke said:
Apparently it's so bad that various economically illiterate people who don't like the Conservative Party and want more money for nothing are blocking roads in London. Still, there's rain forecast for later today.
Would these various economically illiterate people by any chance be members of unions? If so, in what way do they vary? for a start they will all be of a sour demeanour and impervious to reason or logic.Andy Zarse said:
turbobloke said:
Apparently it's so bad that various economically illiterate people who don't like the Conservative Party and want more money for nothing are blocking roads in London. Still, there's rain forecast for later today.
Would these various economically illiterate people by any chance be members of unions? If so, in what way do they vary? for a start they will all be of a sour demeanour and impervious to reason or logic.Crispin Odey, the hedge fund maven who has made billions in markets, is calling a big bear market.
Crispin Odey said:
Odey Asset Management
Report for Dec 2014
The themes I have been outlining since the second quarter of 2014 are now establishing themselves:
For me, the slowdown/recession finds a secondary downturn thanks to the immediate closing down of any discretionary capital expenditure in the affected industries and countries, something we are only just seeing. This obviously has knockon effects for incomes and employment. At that time the exchange rate is likely to be falling to give some support. In my world this slowdown in the commodity producer’s economy is felt via falling exports back in the beneficiary’s economy, which finds external markets weaken. Again, if I am right on timing, the effect can be great because it is not yet affected by a pickup in spending in the beneficiary’s economy.
As always, that is the theory and markets will show whether it works in practice. In my world, this hit to the world economy is the first experience of a business cycle since 2008. Most investors do not believe we can experience such a downturn. They rely upon Central bankers who they think have solved the problem.
However, let’s also deal with three counters that I currently have to field:
There will be a strong temptation for individual countries to act independently of each other to soften the downturn. In this regard the story looks like it is only half way through. Russia will necessarily have to introduce exchange controls, and that really quite soon. Australia, where the average wage is over $70,000, while the USA is creating jobs at $28,000, will have to allow the currency to fall further. Japan has shown, under Abe, how it intends to react. ‘Everyman for himself’ puts enormous stress on a world trading system which has watched world trade rise from 12% to 32% of world GNP in little over 20 years.
So, where am I placing my money?
But this time round the problem we have as well is that politics will start to rear its head and we are left to deal with politicians who are increasingly critical of the capitalist system’s ability to allocate capital and provide for society.
For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is happening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions.
After the 1987 crash, a friend of mine, then a young Director of Sotheby’s, was sent to consult an old Partner who had been at Sotheby’s during the 1930s and was still alive, albeit in a nursing home. My friend asked the question “What was it like in the 30s?” and the man replied “It was like being bitten by a tarantula.” My friend didn’t really understand that, but later on in the conversation the old Partner said “A spasm of activity followed by a death.”
My point is that we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This is the heart of the message. If economic activ-ity far from picks up, but falters, then there will be a pain-ful round of debt default.
We already have volatility across asset classes and as I say, equities are the residual. There is a precious little earnings growth ex-Japanese exporters and we have now reduced our US cyclical exposure as we expect the commodity-induced recession in the mid-west to effect the resilience of the greater US economy. In Europe, we are half way through the write-off process, having written off half as much as the US. Draghi will disappoint and this may cause the first Euro rally given the fall from €1.25 to €1.15 in a month.
We are in the first stage of this downturn. It is too early to see what will happen – a change of this magnitude means the darkness and mist is very great. We will make some mistakes but with our thinking we won’t make the major mistakes. The problem is where you stand – I am amazed to see so many are fully invested given that equities are already fighting the downtrend. Mid and smallcaps have moved into bear markets and much relies on large caps to keep the whole thing going and they are very exposed to international trade.
Report for Dec 2014
The themes I have been outlining since the second quarter of 2014 are now establishing themselves:
- A faltering Chinese economy with growth ultimately slowing down to 3%.
- A hard landing for those countries plugged into China’s growth - especially Australia, South Africa and Brazil.
- A fall in commodity prices bringing with it pain to those heavily exposed. For oil this is the Middle East, Venezuela, Argentina, mid-west USA, Canada, Norway and Scotland.
For me, the slowdown/recession finds a secondary downturn thanks to the immediate closing down of any discretionary capital expenditure in the affected industries and countries, something we are only just seeing. This obviously has knockon effects for incomes and employment. At that time the exchange rate is likely to be falling to give some support. In my world this slowdown in the commodity producer’s economy is felt via falling exports back in the beneficiary’s economy, which finds external markets weaken. Again, if I am right on timing, the effect can be great because it is not yet affected by a pickup in spending in the beneficiary’s economy.
As always, that is the theory and markets will show whether it works in practice. In my world, this hit to the world economy is the first experience of a business cycle since 2008. Most investors do not believe we can experience such a downturn. They rely upon Central bankers who they think have solved the problem.
However, let’s also deal with three counters that I currently have to field:
- ‘How long dare you be wrong?’
- The opposite. ‘Do you think after a good quarter, this is all in the price?’
- ‘But isn’t a downturn in the world economy leading to massive counter-measures in terms of liquidity, as envisaged by Draghi and the ECB, which will push markets and assets higher?’
- The performance of the fund since I decided that the world would end differently to my previous thinking, which was in March/April 2014, reflects that I have not been especially early in this call. It would have been rather nice to get the fall in oil spot on, but we didn’t.
- No change in cycle lasts for nine months. This down cycle is likely to be remembered in a hundred years, when we hope it won’t be rated for “How good it looks for its age!”. Sadly this down cycle will cause a great deal of damage, precisely because it will happen despite the efforts of the central banks to thwart it.
- We need to go back to 2008. We had seen reckless spending and reckless borrowing, fraudulently obtained credit advances and overvalued housing. And yet, despite the banks losing a great deal of money and house prices in the USA tanking, we hardly saw a recession in 2009. Why? Because when the Anglo-Saxon central banks lowered interest rates from 5.25% to effectively zero, they put the equivalent of 30% of net income into the hands of the overborrowed. There were other QE measures taken but this was the important one.
There will be a strong temptation for individual countries to act independently of each other to soften the downturn. In this regard the story looks like it is only half way through. Russia will necessarily have to introduce exchange controls, and that really quite soon. Australia, where the average wage is over $70,000, while the USA is creating jobs at $28,000, will have to allow the currency to fall further. Japan has shown, under Abe, how it intends to react. ‘Everyman for himself’ puts enormous stress on a world trading system which has watched world trade rise from 12% to 32% of world GNP in little over 20 years.
So, where am I placing my money?
- Firstly, I think equity markets will get devastated. Unannounced business cycles ensured Japan’s stock market rating fell by two thirds over 20 years.
- Equities are priced for perfection, pushed up by SWF and high yield investors looking for higher yields and better covenants than high yield bonds.
- Commodity-related sectors look unappealing and dangerous.
- International consumer companies look overexposed to EMs.
- Fund management companies look overexposed to the wrong assets, especially EMs.
- Volatility is rising. Not every trade will work.
- Australia is still to see rates down to 0.5% at the short end, 1.5% at the long end, down from 2.5% currently.
- Currency trading is still to make the money. It made money last year as it was where the ‘tyres hit the road’ – equities are just the residual.
- Equity markets will struggle to understand the quarterly translation and transaction effects of these currency moves on corporate profits, starting with Q1 2015.
But this time round the problem we have as well is that politics will start to rear its head and we are left to deal with politicians who are increasingly critical of the capitalist system’s ability to allocate capital and provide for society.
For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is happening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions.
After the 1987 crash, a friend of mine, then a young Director of Sotheby’s, was sent to consult an old Partner who had been at Sotheby’s during the 1930s and was still alive, albeit in a nursing home. My friend asked the question “What was it like in the 30s?” and the man replied “It was like being bitten by a tarantula.” My friend didn’t really understand that, but later on in the conversation the old Partner said “A spasm of activity followed by a death.”
My point is that we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This is the heart of the message. If economic activ-ity far from picks up, but falters, then there will be a pain-ful round of debt default.
We already have volatility across asset classes and as I say, equities are the residual. There is a precious little earnings growth ex-Japanese exporters and we have now reduced our US cyclical exposure as we expect the commodity-induced recession in the mid-west to effect the resilience of the greater US economy. In Europe, we are half way through the write-off process, having written off half as much as the US. Draghi will disappoint and this may cause the first Euro rally given the fall from €1.25 to €1.15 in a month.
We are in the first stage of this downturn. It is too early to see what will happen – a change of this magnitude means the darkness and mist is very great. We will make some mistakes but with our thinking we won’t make the major mistakes. The problem is where you stand – I am amazed to see so many are fully invested given that equities are already fighting the downtrend. Mid and smallcaps have moved into bear markets and much relies on large caps to keep the whole thing going and they are very exposed to international trade.
Edited by AstonZagato on Friday 30th January 13:23
turbobloke said:
coyft said:
I certainly agree that equities are priced as though everything will remain perfect. It's also true that in the last down turn Central Banks had the flexibility to reduce interest rates.
Don't forget there are negative numbers below zero If you owned Bunds paying say 0.5%, why would you sell them to the ECB and place the proceeds on deposit with the same bank and pay them -0.5% to keep the money safe?
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