"Macro" Musings

[ERICOPOLY]

Last year he said housing would suffer in 2013 and exports would suffer.

 

Ten years ago, in 2003, he forecast 10 years of deflation.

 

Last year he said 10 year would go to 1% and 30 yr would go to 2%.

 

This year, in September, he said GDP will be back to normal trend growth in just 5 years.

 

How do you act on this advice while beating the market?

[blainehodder]

http://philosophicaleconomics.wordpress.com/2013/12/23/valuation-and-returns-adventures-in-curve-fitting/

 

Another great article by @jesse_livermore. Who is this guy anyway?

 

 

 

 

[rkbabang]

Consumer sentiment is fairly low, there is still a lot of negativity out there.

 

http://www.advisorperspectives.com/dshort/updates/Michigan-Consumer-Sentiment-Index.php

 

[giofranchi]

Random facts for the new year:

 

http://www.viewfromtheblueridge.com/2014/01/02/random-facts-for-the-new-year/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+viewfromtheblueridge%2FJkgK+%28The+View+from+the+Blue+Ridge%29

 

 

Gio

[Guest hellsten]

Random facts for the new year:

 

http://www.viewfromtheblueridge.com/2014/01/02/random-facts-for-the-new-year/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+viewfromtheblueridge%2FJkgK+%28The+View+from+the+Blue+Ridge%29

 

 

Gio

 

Thanks. I found the following interesting and sad:

- Chinese stocks are up about 50% from the 1992 highs.

- Americans work 8.5 more hours per week than they did in 1979.

 

Maybe time to buy a China ETF?

http://etfdb.com/country/china/

 

The projected returns for China and Russia are very attractive:

China 34.4%

Russia 26.2%

http://www.gurufocus.com/global-market-valuation.php?country=CHN

 

Headlines are too:

China’s Stock Market Lowest in the World – Unsustainable Economy

China stock market world's worst-performing in 2013

 

But somehow those countries are still not attractive to me. Probably because I don't see many gurus investing there.

[gary17]

I'm wondering if others have come across this article from bloom Berg. About China credit crunch. http://www.bloomberg.com/news/2014-01-02/china-s-runaway-train-is-running-out-of-track.html

 

We have some really bright minds here - let say the world's second largest economy has a 1998 styles Asian crisis or 08 US recession - what will happen? 

 

Do you think the market has already priced this in or are we like the summer of 08 largely ignoring things

 

Thanks

[obtuse_investor]

I'm wondering if others have come across this article from bloom Berg. About China credit crunch. http://www.bloomberg.com/news/2014-01-02/china-s-runaway-train-is-running-out-of-track.html

 

We have some really bright minds here - let say the world's second largest economy has a 1998 styles Asian crisis or 08 US recession - what will happen? 

 

Do you think the market has already priced this in or are we like the summer of 08 largely ignoring things

 

Thanks

 

Thanks for posting this article. It is pretty scary stuff even if I ignore the negative hyperbolic language.

 

Whatever happened to journalistic principles.

 

[wisdom]

I believe FFH would be fairly well positioned if that played out.

 

From what I understand FFH has identified China and commodity producing countries such as Canada and Australia as potential risks.

 

They believe a slow down in China could lead to lower commodity prices which inturn could lead to global deflation. One of the many reasons for their deflation hedges.

[ERICOPOLY]

I believe FFH would be fairly well positioned if that played out.

 

From what I understand FFH has identified China and commodity producing countries such as Canada and Australia as potential risks.

 

They believe a slow down in China could lead to lower commodity prices which inturn could lead to global deflation. One of the many reasons for their deflation hedges.

 

Commodities going down in price isn't going to squeeze the producers of finished goods, is it?  Let's say I depend on the price of steel to produce pickup trucks.  I should worry about deflation's effects on my business if we are merely talking about the cost of steel going into the truck being cheaper?  I don't get it -- that sounds like helpful deflation.  I either make more profit on the truck, or I lower the price and make more trucks (getting full utilization out of my truck making plant, profits then rise).

 

 

[gary17]

Is there any other way to hedge this risk for retail investors who don't want to buy FFH or BAC puts?

[bmichaud]

http://pragcap.com/rail-traffic-ends-2013-at-a-2-5-year-high

[wisdom]

I believe FFH would be fairly well positioned if that played out.

 

From what I understand FFH has identified China and commodity producing countries such as Canada and Australia as potential risks.

 

They believe a slow down in China could lead to lower commodity prices which inturn could lead to global deflation. One of the many reasons for their deflation hedges.

 

Commodities going down in price isn't going to squeeze the producers of finished goods, is it?  Let's say I depend on the price of steel to produce pickup trucks.  I should worry about deflation's effects on my business if we are merely talking about the cost of steel going into the truck being cheaper?  I don't get it -- that sounds like helpful deflation.  I either make more profit on the truck, or I lower the price and make more trucks (getting full utilization out of my truck making plant, profits then rise).

 

It is not helpful for commodity producers especially ones with debt. If it reduces earned income it would reduce consumers spending power. What will that do all the factory workers in developing countries?

 

 

[ERICOPOLY]

I believe FFH would be fairly well positioned if that played out.

 

From what I understand FFH has identified China and commodity producing countries such as Canada and Australia as potential risks.

 

They believe a slow down in China could lead to lower commodity prices which inturn could lead to global deflation. One of the many reasons for their deflation hedges.

 

Commodities going down in price isn't going to squeeze the producers of finished goods, is it?  Let's say I depend on the price of steel to produce pickup trucks.  I should worry about deflation's effects on my business if we are merely talking about the cost of steel going into the truck being cheaper?  I don't get it -- that sounds like helpful deflation.  I either make more profit on the truck, or I lower the price and make more trucks (getting full utilization out of my truck making plant, profits then rise).

 

It is not helpful for commodity producers especially ones with debt. If it reduces earned income it would reduce consumers spending power. What will that do all the factory workers in developing countries?

 

No question on the commodity producers.  I don't see the causal link with factory workers.  Non-commodity-producing companies see falling costs, the can sell more units at lower prices for the same or higher profit.  Increased production leads to increasing demand for factory labor and this is bad somehow for factory workers?

[wisdom]

True when looking at the big picture but it plays out differently on the ground level.

 

My best explanation would be:

 

1) As revenues drop due to deflation business start looking for opportunities to cut costs to bring costs in line with new revenues - jobs, etc.

 

2) the still employed workers choose not to take pay cuts. It would be a better outcome for society if everyone took a proportionate cut in pay, but what happens is that companies end up laying off individuals while the rest keep earning the same as before.

 

Hope it makes sense.

[wisdom]

I should have added that in a competitive world your increase in margins from the drop in commodity prices should not last as your competition achieves the same and could use this opportunity to gain market share by cutting prices.

[ERICOPOLY]

True when looking at the big picture but it plays out differently on the ground level.

 

My best explanation would be:

 

1) As revenues drop due to deflation business start looking for opportunities to cut costs to bring costs in line with new revenues - jobs, etc.

 

2) the still employed workers choose not to take pay cuts. It would be a better outcome for society if everyone took a proportionate cut in pay, but what happens is that companies end up laying off individuals while the rest keep earning the same as before.

 

Hope it makes sense.

 

Alright, so if falling commodities prices are going to hurt the US economy, then rising commodities prices are going to help it?

 

Did the parabolic rise in commodities prices over the past 15 years feed into better employment for US workers over the last decade, and rising wages for US workers?  Did it boost consumption, or hinder it?

 

Did it create a level of prosperity that is now going to unwind here in the US? 

 

My basic intuition is that it drove costs higher, which led to lower consumption, consequently lower levels of production and lower wage pressures.

 

I recognize the effect it had on Australia (huge mining boom in a country hugely dependent on mining)... but I guess I'm just looking at it from the lens of the US economy.

 

[wisdom]

US is different and should be a beneficiary due to the low input costs going forward and the fact that its corporations are so efficient. The sheer amount of R&D and leaps in technology happening in the US is overwhelming. It is truly amazing.

 

In addition, US started its deleveraging before others and have gone about it better than most. They could have done it better but perfection doesn't happen in real life.

 

US will continue to be the leader in science and technology in our lifetimes and i don't see anyone challenging that. For any bright mind in the world - this is where i would want to be - i can get financing and other like minded people to work with me.

 

It is a huge moat.

[Guest hellsten]

CAPE Returns for 2013. Did CAPE work in 2013?

http://www.mebanefaber.com/2014/01/02/cape-returns-for-2013/

[giofranchi]

Mr. Charles Gave "On US Capital Spending"

 

I have written often about why companies have been compelled to focus on financial engineering to boost margins and profits, rather than investing in the real economy. As Knut Wicksell told us more than a century ago, interest rates and exchange rates are the two building blocks of the monetary information system. When they are kept artificially low by central bank manipulation, then businesses realize that all prices are distorted, and stop investing. In such a world, the only rational solution is to return the capital to the shareholders and leave them with the problem of what to do with the money. Thus increases in buybacks and dividends.

 

The long-term result is a decline in the structural growth rate, since an economy needs capital investment to raise productivity; and without rising productivity, there is no sustainable growth.

 

 

Gio

Daily+1.8.14.pdf

[giofranchi]

Gio

[nikhil25]

Jobs Miss Jolts Markets

Monthly Employment Report Registers Big Miss; Dollar Dips; Treasurys, Gold Rise

http://online.wsj.com/news/articles/SB10001424052702304347904579312210100509386

 

The U.S. added 74,000 payrolls in December, the Labor Department reported, far short of economists' forecast for 200,000 new jobs during the month. The report marked a surprisingly weak end of the year for the labor market and potentially complicates the Federal Reserve's plans for further scaling back—or "tapering," in Wall Street parlance—its bond-buying program.

[bz1516]

I'm getting concerned again about China's economy and its effect on basic materials producers and shipping.  Their efforts to reign in shadow banking and reduce the growth of pollution set up a tension between those goals and growth for the world's number one commodity user and importer. 

 

When i was in China in October the pollution was so much worse than I had ever experienced before.  Both my wife and I by the end of the trip had soreness in our throats and minor bronchial problems.  when pollution levels reach over 100, with over 10 being dangerous to health, even the Chinese have to take that into account when planning additional growth.

 

Shadow banking is related to growth in UFAI, so reducing it reduces the preferred method they have used to stimulate their economy.  Seems like they have to choose between growth on the one hand and financial stability and health on the other.  either way commodities are threatened, either incrementally now, or possibly in a black swan event sometime down the road.

 

I'm now completely out of anything commodity related to be safe.

 

George Soros  has recently sensitized the market to these risks.  Even though a hard landing may be somewhat unlikely and a black swan event even less likely, commodities would seem to suffer either way.

[giofranchi]

Hoisington Quarterly Review and Outlook - Q4 2013

 

 

Gio

hoisington-investment-managment-quarterly-review-and-outlook-4q-2013.pdf

[Steve]

 

great article on how U.S. oil boom is changing the world:

 

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/16/how-the-u-s-oil-boom-is-changing-the-world-in-6-charts/

 

-Steve

[obtuse_investor]

For the macro market timers among us.

 

at-a-glance-011514.pdf