The Global Economy 2016-2017

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The Global Economy 2016-2017

Postby admin » Sat Jul 09, 2016 10:08 pm

o.k., we always seem to have the various threads that deal with the international economy in one way or another constantly running on the forum. the peso trend threads, the brexit thread is as much economic as political, and so on.

Well, and perhaps this is just my own paranoia, but I believe we are heading for a super Global economic crash. I am not sure it will be so much a 2008 type crash, as 2008 part 2, the 'Empire Strikes' back sort of crash. All the cans they kicked down the road in 2008, are hitting a wall.

Even apart from that, we are statistically past the point of no return for a bear market / recession historically by several months now. The big question is not a matter of if, but when will a new recession start; however, there is always the even more disturbing sub-question about has it already started. The fun with recessions are, they tend to only be obvious in the rear view mirror.

Everywhere I look, and the brexit vote was a rather good test of this, it is like there is a recession stocking the halls of central banks, looking for good reason to crash the markets. Brexit simply was not sufficiently important to bring the Global economy and markets to their knees.

There was an interesting quote the other day, from a hedge fund manager, that claims it was said to him in private by the head of a central bank, something to the effect, "The dirty secret to monetary stimulus by central banks is, it only works if everyone else is not doing the same".

I am not even sure the source is trustworthy, but the logic seems sound. Let's all race to the bottom, by printing more and more money, to make our currency cheaper (relative to what?), to make our exports cheaper (to whom?), so that we will create jobs (for what?), so that our population will buy more stuff (from whom, for what?), and that will save the Global economy and we will all live happily ever after.

Well, to kick it off, I thought this article pretty much captured all of the above, and the 100 trillion dollar elephant in the room:
http://www.newsmax.com/Finance/DavidSto ... id/737897/

He takes a current look at the payroll taxes collected vs. the U.S. rosy political number that claims there was a rise in hiring. The reason:

To my knowledge, there is no sentient employer in the US who sends payroll tax money to Washington based on phantom jobs owing to seasonal adjustments, birth-death imputations or trend-cycle adjusted models which recalibrate shop floor headcounts to fit a prior trend.


The payroll tax is saying only a 0.5% rise, year over year; but, then he explains why that number is likely overstating the employment number. The largest decreases, are related to things like contractors and company bonuses, that are the first things to get cut in an economic slow-down. Even more, the types of jobs, based on the taxes paid, are rapidly decreasing in quality. Massive jumps in hospitality, hotel industry, bar tender type jobs. Which earn way, way less, and work far fewer hours per week. In other words, the product in the GDP, is being generated by more people doing less. The whole article is really worth a read.

Essentially, at the moment, or so the central bank bed-time story goes right now, the U.S. economy although sluggish, is still growing and jobs are being added, and thus the World is saved. The U.S. economy, even though it is obvious most of the rest of the World is in serious trouble, can prop up the Global GDP sufficiently for all of us. Well, yea, perhaps, buuuuuut, that is not what is really going on.

That has not been going on for about a year now, perhaps two years, by my back of the napkin calculations.

The thing that needs answering, is what brings it down. Where is the Black Swan (which is a popular employment of a old Philosophical tool these days, but a bit abused)? Is it China? The EU? Does the bond market blow-up? Currency leverage? EU banks?

I honestly think it is almost irrelevant, which match in the box started the fire when the building is in full flames. It will be the reaction (or lack of action), that will matter. Will the fire department get there in time, and will they have sufficient water to put this one out?

Not looking so good. So, again, the 'when' is likely more important. My money, like the last one, will be somewhere around the U.S. presidential election. Politics, more than economics, is driving this show right now, both inside the U.S. and internationally.
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Re: The Global Economy 2016-2017

Postby buzzdriving » Sun Jul 10, 2016 12:58 am

Hi admin.

Yeah. It's funny. Part of the reason I came to Chile was to shield myself from the coming upheaval. I could see a government that, on the face of it at least, was thinking innovatively by funding various programs to diversify out from mining and agriculture. That said, I think they might have been a little late on the trigger, and the next category five storm is on its way, and in short time too. I'm starting to wonder if they've done enough. I'm amazed by how heavily this economy relies on imports. What has me somewhat bemused is how a country can be so economically stable with so little internal economic diversification. Chile was one of the few developing countries that was experiencing high growth during the last recession, but how much of that was due to China? Eight years later, is the Chilean government scrambling quick enough? I haven't been here long enough to tell.

It's funny you should wonder about whether it will be a new crisis or just 2008 2.0. One financial expert I follow suggests you are correct, and uses the analogy of passing through the eye of a storm. He suggests that 2008 was the leading edge of the storm, and that we have just finished crossing the calm eye. The trailing edge is about to hit us, and the wind speed will be that much higher. He justifies this analogy by suggesting that the US property market is all leveraged up again. I can't remember how he demonstrated that, but there were charts involved.

When I talk to people about the coming disaster they stare at me blankly or roll their eyes at me as if I'm Chicken Little. The problem is it's even too technical for ME to understand. I only have abstract idea of what's going on (although I'm pretty clear on fiat currency, fractional reserve and central banks!).

Just hoping I haven't backed the wrong horse coming here.

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Re: The Global Economy 2016-2017

Postby admin » Mon Jul 11, 2016 10:48 am

well, the peso thread is likely got better coverage of the Chilean economy specifically. still, as sluggish as the Chilean economy is, it is beating out almost every other economy in the world for still having natural growth without the goverment injecting mega money and debt to keep it artificially looking good. If you look at almost any country in the world that is still reporting any type of growth, it is almost all central bank injected growth. Chile's interest rates are still at 3.5%, without runaway inflation like just about everyone else in south america. The central bank did say they might cut interest rates next meeting, but with 3.5 to run they can cut a long way before they run out of means to do it.

there was a recent survey of investors and businessmen in Chile, and the number one thing everyone said holding up was the stupid goverment of bachelet creating uncertainty about policy moves. Like the labor reform law, that was passed, killed by the supreme court, then killed by administration, then redone, and now the whole things starts over. they did the same with the tax reform bill, real estate tax, private schools, and on, and on. Everyone had made piece with the changes for the most part, but then the administration changes their mind or changes the law they are trying to pass. Investors can deal with things like higher taxes, but it is the lack of clarity about what exactly the rules are and will they go through with it that is holding back the economy. make a decision and keep to it.
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Re: The Global Economy 2016-2017

Postby john » Mon Jul 11, 2016 4:41 pm

The following opinion piece postulates that weak demand and a bias towards deflation are enduring problems (which is what the Japanese economy has experienced for the past two decades) and that near zero or even negative interest rates may be in store for the foreseeable future.

Cheap Money Talks
http://www.nytimes.com/2016/07/11/opini ... egion&_r=0
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Re: The Global Economy 2016-2017

Postby MoneyMachine » Fri Jul 22, 2016 9:54 am

john wrote:The following opinion piece postulates that weak demand and a bias towards deflation are enduring problems (which is what the Japanese economy has experienced for the past two decades) and that near zero or even negative interest rates may be in store for the foreseeable future.

Cheap Money Talks
http://www.nytimes.com/2016/07/11/opini ... egion&_r=0


If central banks' current monetary policy (buying government bonds to push real interest rates into negative territory) doesn't work, then they'll have to resort to more extreme measures (such as helicopter money). That will probably be the only way to lower developed countries' debt burden, especially for the Eurozone and Japan. Let's hope it doesn't come to that, because that's really uncharted territorry. No idea how (emerging) markets would react to such an experiment :? .
caveat emptor

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Re: The Global Economy 2016-2017

Postby fraggle092 » Fri Jul 22, 2016 7:08 pm

It was quite surprising the way the CLP shot up post-Brexit, given that there's absolutely nothing going on in the local economy to justify the appreciation, quite the contrary.

According to this report, its due to currency speculators looking for quick profits, the money will just as quickly flow out again when conditions change, like that Central Bank 3.5% interest rate for example.

And Bank of America Merrill-Lynch reckons the CLP is overvalued, and expects to see an exchange rate of 690 at the end of 2016 and 750 end 2017.

But the experts could be wrong.....
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Re: The Global Economy 2016-2017

Postby eeuunikkeiexpat » Fri Jul 22, 2016 7:25 pm

The experts outside of Chile never seem to get it right and/or seem to have some kind of agenda (front run a spike/short-term move, bash for political reasons, other).

Remember the John Maudlin article from late 2014 that said Chile was one of the 8 most dangerous economies?
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Re: The Global Economy 2016-2017

Postby papageno » Fri Jul 22, 2016 7:44 pm

fraggle092 wrote:It was quite surprising the way the CLP shot up post-Brexit, given that there's absolutely nothing going on in the local economy to justify the appreciation, quite the contrary.

According to this report, its due to currency speculators looking for quick profits, the money will just as quickly flow out again when conditions change, like that Central Bank 3.5% interest rate for example.

And Bank of America Merrill-Lynch reckons the CLP is overvalued, and expects to see an exchange rate of 690 at the end of 2016 and 750 end 2017.

But the experts could be wrong.....


Yeah, saw the headline yesterday, but didn't have time to look deeper. Thanks for posting the link.

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Re: The Global Economy 2016-2017

Postby eeuunikkeiexpat » Fri Jul 22, 2016 8:34 pm

Another possibility related to trading interests is that they are shilling for the interests of their buds who are underwater because they bet wrong on the CLP. Even I was surprised on the strength of the CLP so you can make a safe guess there are some traders underwater on this and hoping that a few public articles will help move the market (at least temporarily) to bail them out or cut losses.

I mean why now after it's been how many days since the results of the vote?

I follow CLP/USD daily and it was just this week that 650 became the trading norm, THAT must be the point of extreme pain for the traders.
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Re: The Global Economy 2016-2017

Postby admin » Sun Jul 24, 2016 7:10 am

well, the tea leaf reading I have been following seem to point to a recent big moves by foreigner investors in to the Chilean stock market. It is not just a currency trade. They are searching for relatively safe, but higher yield EM plays. The IPSA just broke through new 52 week high. If you look around however what stocks are moving, they tend to be the large Chilean companies with exposure to other markets and / or have a foreign ADR listed outside. There also might be some speculation that mining and commodities are setting up for another bull run, as all the central banks are either going to inject more stimulus or at least stand pat with the low rates they got now.

Right now, with all the crap going on in the World, boring old Chile, where nothing is really going on, good or bad, is looking like an investment gem with all the uncertainty in other markets.

Also, I think, they are rapidly expanding the Pacific Aliance MILA market integration program. I suspect now that money can flow easier between the members markets, and let's face it trying to move money in to or out of Chile for investment, even for the big boys, is a pain in the ass. Now, say you are million dollar+ trader, you have brokerage accounts in Peru, Colombia, or Mexico, you can buy Chilean companies on their bolsas directly. So, colombia say is having a bad week, money get's to flow in to safer haven Chile. It is still too early to tell, but I think it might help with the low liquidity problems Chilean companies have.
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Re: The Global Economy 2016-2017

Postby admin » Sun Jul 24, 2016 7:44 am

likely also does not hurt that the big miners are calling a bottom in copper, and a deficit as early as 2017. That always get's the commodity traders hot and bothered, so they start positioning for next year.

http://www.mining.com/chilean-copper-ex ... ince-2009/
Spencer Global Chile: Legal, relocation, and Investment assistance in Chile.
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