Skip to main content

The voice of doom -- the bust that never happens

Reading the financial press over the past few months the overall view is that the markets are overstretched, ready for an implosion.  Yet over the past 12 months the S&P is largely unchanged -- from 2060 to 2040 -- in 12 months, in the US at least unemployment, at 5.1% is at a historical low -- labour participation is not rising, leading analyst to assume that the reduction in the American labour force is a systemic and not economic events (the percentage of the population that is over 55 is growing -- that impacts participation rates).

The US dollar is more or less unchanged, interest rates are still hovering in the low single digits -- despite the US Feds desire to tighten the screw -- in a sense, an that's probably where the unease arises, there is a sentiment that the economy has not really recovered from the 2008 crisis.  

Of course that's America's story -- Canada story is different, but then as soon as the commodity complex improves, Canada's fortune will improve (although the recent $20 billion federal government deficit would suggest that the road ahead is long and difficult).  The fundamentals elswehere are equally interesting.  Europe seem to be in standby mode -- Dragi's unable to find new ways to stimulate the European economies.  

A few weeks ago a French friend was discussing the state of the CAC40 (equivalent to DJ Industrial) where nearly 85% of the ownership of French listed companies was in the hands of foreign capital -- the French government was not very happy with the situation...however, over the past 4 years has gone out of its way to increase taxes (of all kinds).  My friend a banker earns a very very attractive salary package, yet has seen its taxes nearly double over the past 4 years.  His take home pay has nearly halfed over that time; not entirely surprising his "disposable income for investment" has shrunk somewhat.  Lets be clear, he's very well paid, he's seen some nice bonus' over the past few years -- granted a lot is differed but he's actually cut back on expenses.  But he's got no real money for investing, and what he does he's certainly not putting at work in France! So the explanation of the foreign ownership of the CAC40 is simple to explain.  

I still think that the overall growth of western economies is also largely tempered by the demographic shift.  I've been told otherwise, that the stats don't support such conclusions but it remains that shrinking wages (median) and "hidden inflation" reduce purchasing power cannot explain the general economic weakness.  Even America's vaunted  strength is really hiding weakness; corporate core earnings have been static for some time now, the growth in "other income" and accounting games has been the main source of growth.

Anyway, this ranting is just to show that things are no so much difficult as strange!  The old joke that if government just got out of the way things would be better -- it would seem that American's drinking water problem is showing this to be a falsehood.   America -- visit but don't drink the water. BTW, and this must be pissing off the conservatives something bad, Congress (Republican) pushed legislation removing the EPA's right to inspect water quality -- because the States were better equipped to do the job.  Imagine how pissed the GOP was when the summoned the EPA after the Flint water debacle -- so that they could gloat at the EPA's incompetence, when the EPA politely pointed out that for the past 4 years they have zero right to supervise the water quality in the US, as such they have no idea what happened in Flint....  

Priceless

Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…