Post Tagged with: "debt"

China: Choosing More Debt, More Unemployment, Or Transfers

China: Choosing More Debt, More Unemployment, Or Transfers

China’s success will depend on the extent to which Beijing in 2016 is able to centralize power, to begin to sell off government assets (probably local and provincial, and not central, government assets), to rein in credit growth, and to accept much lower GDP growth rates while keeping household income growth from dropping too sharply. If it cannot do this, China’s adjustment is likely to be much more difficult, much longer lasting, and perhaps much more disruptive.

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Jensen: How long bonds could actually outperform equities

Jensen: How long bonds could actually outperform equities

The equity markets that have fallen the least so far are the U.S. and the Japanese markets. If my prediction that we are looking into a more difficult period in the U.S. (and the euro zone), U.S. equities look particularly vulnerable, so maybe Jeremy Grantham will be proven right after all. If you add to that the rather lofty earnings expectations for next year in the U.S. (chart 10), the situation only gets trickier.

Despite not exactly being dirt cheap at current valuation levels, I am therefore going to stick my neck out and suggest that long bonds could actually prove a better investment than equities – at least until we approach the bottom of this economic cycle.

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If we don’t understand both sides of China’s balance sheet, we understand neither

If we don’t understand both sides of China’s balance sheet, we understand neither

These debt-related shocks will occur regularly for many more years, and each shock will advance or retard the rebalancing process so that it affects the way future shocks occur. There are only a few broad paths along which the Chinese economy can rebalance, and if we can get some sense of the China’s institutional constraints and balance sheet structures, we can figure what these paths are and how likely we are to slip from one to another. In order to get Chinas right I would argue that above all we must understand the dynamics of debt, and of balance sheet structures more generally.

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Trends and prospects for private-sector deleveraging in advanced economies

Trends and prospects for private-sector deleveraging in advanced economies

Major advanced economies have made mixed progress in repairing the private sector’s balance sheets. This column explores private sector deleveraging trends and calls for a set of policies that will return debt to safer levels. Monetary policies should support private sector deleveraging and policymakers should not ignore the positive impact of debt restructuring and write-offs on non-performing loans.

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How would markets deal with a Petrobras default?

How would markets deal with a Petrobras default?

The question of whether markets are prepared for the default of such a large debtor is a good one to ask in thinking about tail risk as the situation at Petrobras encapsulates the intersection of emerging market US dollar corporate debt, sovereign contingent liabilities, the oil patch downturn and, monetary policy divergence quite well. The outcome is likely to be extremely negative for markets and economies.

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The US Armageddon Scenario Part 2

The US Armageddon Scenario Part 2

The last post was an attempt to describe a reasonable worse case scenario for the US real economy as relatively benign compared to 1937, a comparison making the rounds these days due to a piece by Bridgewater’s Ray Dalio. My point is that 1937 is not a good comparison to 2015 in terms of the severity of possible real economy outcomes. Better comparisons are 1997 Japan or 1994 America. But on the other hand, in terms of market outcomes, I believe the severity of a potential decline is large. Some thoughts below

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The US Armageddon Scenario and 1937

The US Armageddon Scenario and 1937

The title of this post is a bit alarmist. But what I intend to write is more about reasonable worst case economic scenarios that the Fed is looking to avoid. While a 1937-style downdraft is something to consider down the line, in the medium-term the question revolves more around the Fed tightening into weakness that is exacerbated by turmoil abroad. I am not unduly concerned about another 2008-style collapse. However, I do want to point out where I think the limited downside is for 2015.

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Five Investing Themes That Need Further Examination

Five Investing Themes That Need Further Examination

Tiger 5 – Grexit is inevitable

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Snail Trail Vortex

Snail Trail Vortex

The Absolute Return Letter, November 2014 “The single most robust and striking fact about cross-national growth is regression to the mean.”  -Lawrence Summers and Lant Pritchett Low growth is printed on the wall When financial markets capitulate, many investors lose the ability to keep things in perspective. That is a fact of life. Instead the little things take over and […]

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Zero rates, resource misallocation, and shale oil

Zero rates, resource misallocation, and shale oil

This post has been a long time coming because it is very much in my wheelhouse and I haven’t connected the dots for you on this issue yet. The nexus of zero rates, resource misallocation, and risk on has favoured shale oil. But the drop in oil prices will call many of these projects into question precipitating a funding crisis and a panic dash for the exits. There will be carnage and the question will be whether this carnage causes contagion into other markets.

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Deleveraging, What Deleveraging? The 16th Geneva Report on the World Economy

Deleveraging, What Deleveraging? The 16th Geneva Report on the World Economy

The world has not yet begun to deleverage its crisis-linked borrowing. Global debt-to-GDP is breaking new highs in ways that hinder recovery in mature economies and threaten new crisis in emerging nations – especially China. This column introduces the latest Geneva Report on the World Economy. It argues that the policy path to less volatile debt dynamics is a narrow one, and it is already clear that developed economies must expect prolonged low growth or another crisis along the way.

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Rising global debt levels will trigger the next crisis

Rising global debt levels will trigger the next crisis

The conclusion of the recently released Geneva report is that debt is the Achilles heel of this cyclical recovery. The Geneva economists warn that, despite the widespread belief that a general deleveraging has occurred due to the Great Financial crisis, in reality debt levels are higher today on a global basis than they were when the crisis began. They, rightly, worry that this debt will precipitate another global economic crisis. Some thoughts below

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