That is the topic of my latest Bloomberg column, here is one bit, the optimistic part:
When observing the evolution of market prices in reaction to Trump, I am currently left with a mix of very optimistic and very pessimistic sentiments.
First, the European Union, and not the U.S., really does remain the center of Western civilization. The underappreciated good news is that European growth rates are edging up, the euro as a currency appears to have a more secure future, and Brexit, though I view it as a major mistake for the U.K., is not pulling apart the broader European project. The refugee crisis has stabilized, and right-wing populist parties are not taking over Europe. I see that (legitimate) concerns about the impact of Trump are distracting many people from these quite positive developments.
Second, I now view many asset classes as at least partially dependent on Chinese capital, but I’m not so afraid of that capital going away, as those positions have built-in hedges. If China does well, the flow of Chinese capital will continue. If China does poorly, capital will leave China rather rapidly and seek out foreign investments, and that too gives non-Chinese markets a fair degree of protection. China’s highly leveraged position may be precarious internally, but the West has a built-in hedge, namely that bad times for China still send more capital our way, at least for a while. That’s another piece of security that we have been distracted from seeing, though I’m not sure it is good news for China itself.
If you were wondering what to make of low expected volatility in markets, it’s typically worth looking at which asset prices have been volatile. I have two nominations: Chinese corporate bonds and Chinese commodity prices, both of which have fluctuated considerably with changing expectations about Chinese deleveraging. But those have not created a broader crisis of volatility, which is consistent with the above story about how the world as a whole has been growing economically safer. Furthermore, the ongoing growth of emerging economies implies more global diversification over the long run for both trade and investment.
Do read the whole thing.
‘First, the European Union, and not the U.S., really does remain the center of Western civilization.’
Well, only until eurogeddon, right?
‘and Brexit, though I view it as a major mistake for the U.K., is not pulling apart the broader European project’
Of course – Brexit helps the EU, as the UK was not interested – as currently being demonstrated – in accepting the conditions of being a member of the EU.
‘I see that (legitimate) concerns about the impact of Trump are distracting many people from these quite positive developments.’
Trump’s supporters generally have no interest living in a world where most people reject their political opinions and beliefs, and thus use alternative facts to allow them to make up them own world.
On the 10 year anniversary of all the “decoupling” prattle and low VIX forever prayers Tyler again falls for naive statistical analysis. Yes, “collectively” five Euro pigmies stand a dozen feet taller and weigh three hundred pounds more than Shaquille O’Neill; but Shaq still stomps them 1 on 5. That’s because 1) they cannot effectively coordinate; and, 2) they’re hampered by Brussell’s three dozen blind mice, the experts who deign to pontificate about that which they cannot understand. Check out Britain’s and the EU’s total r&d health spend and compare it to America’s NIH budget for the former and then check patent filings, publications, retractions and replications for the latter.
As for China, come to the Gulf Coast and see what’s going on. For years I lamented that all the new chemical plants and refineries were being built in China instead of here. I worked on two matters where the Chinese came in and bought entire chemical plants, down to the pipe racks, and had them shipped home and rebuilt – like London Bridge sent off to Arizona. But now, America is rebuilding ( e.g. http://www.caller.com/story/money/business/local/2017/04/19/exxon-mobil-corp-worlds-largest-ethylene-cracker-plant-south-texas/98820232/ ) and the results can be seen from CC to Mobile. Thirty years ago Sabine Pass was pretty much dead – the only sights worth seeing were the rusting and abandoned jack-up rigs. Check out its LNG facility, the busy intracoastal and the line of ships stretching miles out in to the Gulf.
The oldest old timers say it hasn’t been like this since just before WWII. Hmmmmm.
“Second, I now view many asset classes as at least partially dependent on Chinese capital..”
http://www.smh.com.au/comment/how-chinas-real-estate-bubble-pushes-up-prices-in-sydney-20170522-gwa9w7.html
What TC said.
I wonder if Tyler is going to link to or comment on Michael Lind’s “The New Class War”.
#EndTenure
Minsky says don’t worry.
Prosperous times lead to speculative euphoria, then debt drowns happy borrowers, later financial crisis and contraction. Thus, the prosperous (complacent) part of the cycle will end before broader societal deterioration occurs. This column fails the test of “never extrapolate a trend into the long term”.
Tyler was an optimist during the Great Recession. Since last year, he’s steering into pessimism. The optimism/pessimism outcome depends on what? Being a contrarian?
Axa = Rip van Winkle
You missed the part about all GDP gains going to the 0.1% since 2008.
Hy Minsky would not be impressed.
Cowen can add his own name to the complacent class. Does “volatility in markets” only apply when prices go down? The Austrians tell us that prices can’t go up unless they first go down. But the inverse is also true: prices can’t go down unless they first go up. And prices are up in markets, from stocks to real estate. Cowen says he is optimistic prices will go up (or won’t go down) because capital will continue to flow to the US because prices will go up (or won’t go down). Tautology 101. How can one predict both a Great Reset and be complacent about prices that are expected to go up (or not down) because, well, they are expected to go up (or not down)? I’m all in on Cowen’s “ongoing growth of emerging economies” as reason for optimism, but it’s also reason for pessimism, for while it will greatly reduce world poverty and inequality across nations it will also greatly increase inequality within nations, the latter adding fuel to already overheated asset prices and setting the stage for the kind of “volatility in markets” that could only make our Austrian friends smile. Now that’s reason for optimism.
I don’t understand this at all. Is Cowen saying that the market can’t increase much if volatility is low? If so, why? I can picture the market growing but with low volatility.
Here is Larry Summers’ contra argument: http://larrysummers.com/2017/05/21/atlanta-fed/
US equity markets have become the honey badger.
I actually woke up wondering how we could fix the federal government, starting today. Rather than, you know, waiting “decades.”
I think it will take 2020, and a panel of young candidates to change things. The olds are mired in decline.
Oh, and some supreme court rulings forcing algorithmic redistricting would be awesome, even if only because the districts would be different. A reshuffling.
American’s choices have not mattered for a long time. Consider the 2016 election. We would either have a status quo candidate under continual investigation or a faux radical candidate under continual investigation. Both paths lead to the same place, lethargy. I see this moment as an opportunity. We can continue to rely on the ingenuity of our forefathers or we can realize our potential to make America truly great. Donald Trump is merely a symptom that our immune system is compromised.
Chomsky’s “Requiem for The American Dream” is a more radical version of my thinking on low volatility. Our choices matter little to the “free” market and that should worry all Americans.
2016 was weird, but neither party is likely to make exactly the same mistake in 2020. Democrats will run someone who can campaign. Republicans will run someone who can handle a 3 page memo.
And is clever enough not to confirm leaks in public – the latest example of Trump doing this being confirming that Israel possessed a well placed ISIS asset, while denying he ever said Israel’s name to the Russians. Which no questioned, actually.
Probably more age-related cognitive decline.
https://www.statnews.com/2017/05/23/donald-trump-speaking-style-interviews/
“Democrats will run someone who can campaign.”
Campaigning wasn’t Hillary’s weak point, honesty was. She was considered less trustworthy than Donald Trump.
“More voters trust Donald Trump over Hillary Clinton, according to a new tracking poll released Wednesday.
The Republican presidential nominee leads his Democratic rival on honesty and trustworthiness by eight points in a Washington Post-ABC News poll, which found 46% of likely voters saying Trump is more honest and deserving of trust.”
http://time.com/4554576/donald-trump-trustworthy-hillary-clinton/
That’s funny. You just put your head back in 2016 and pretended a year never happened.
Hillary’s “dishonesty” was a production of Russian intelligence. It was a “feel” and not a fact. The amazing thing is that in they year you missed, we learned that Hillary never violated the national interest. And every claim about Hillary has been bested by Trump and tribe for personal gain.
Hillary State rushed passports to save refugees. Kushner’s family sells visas for $.
Hillary’s “dishonesty” was a production of Hillary. Russian intelligence, or more likely now, a DNC insider just exposed it. Not that it mattered much. Half the people out there already knew and the other half just continued to ignore it.
Do you actually have anything to top Trump literally laughing with the Russians as he lies to the American people?
http://www.chicagotribune.com/news/opinion/commentary/ct-trump-russians-white-house-20170511-story.html
Every b.s. Hillary story pales.
I ask “do you actually have anything to top?” and then I flip to the news. I can top.
Trump called Duterte specifically to congratulate him on his drug war, which you may remember is *based* on the random murder of citizens.
https://theintercept.com/2017/05/23/trump-called-rodrigo-duterte-to-congratulate-him-on-his-murderous-drug-war-you-are-doing-an-amazing-job/
.. just put down your “but Hillary!” and quietly walk away.
“First, the European Union, and not the U.S., really does remain the center of Western civilization.”
Why? The US has a higher GDP per capita by some estimates even without Britain, it will certainly have the higher value when Britain leaves. It’s not even close in terms of per capita GDP. Militarily, the U.S. is much stronger. I remember back in the early 2000s the predictions that the Euro would replace the dollar the world’s reserve currency, what a laugh that is now. As far as trade and cultural exchange with the non-White world, America dominates. When traditionalists everywhere complain about the effect of Western culture on their countries, do they cite the “European Union?” No, they cite America.
Tyler’s signaling again.
Yeah, “the European Union, and not the U.S., really does remain the center of Western civilization” is a very bad quote as the insurance commercial says.
The Anglo-American alliance [including Canada and Australia and others] remains the keystone of the West and the world has it has for well over 100 years.
https://twitter.com/mattyglesias/status/867037017535913985
HE’S STEALING OUR STYLE!
+1
Let’s consider all the facets which constitute “the center of Western Civilization”. Movies, television, science, technology, social science, business, language, military doctrine, geopolitics, genre fiction and social media. The US dominates Europe so much it’s not even close. Religion, finance, popular music, medicine, and literary fiction. Maybe Europe can contend as long as you include the UK, the Vatican and Switzerland as part of the “greater EU”. Philosophy, domestic policy, visual arts and art music are the only fields where you can plausibly claim that the EU leads the US.
Philosophy? I remain highly even bigly skeptical of this claim.
Fashion? Perhaps. (But it is sold to Americans and Chinese.)
Wait, weren’t you the guy predicting a Chinese bubble that was going to pop and melt down? What makes you think you have useful insights on China today?
A lot of this column is pretty loosely expressed. “I now view many asset classes as at least partially dependent on Chinese capital . . . .” What you say here is trivial; I think what you mean is that demand for assets is *more* dependent on the Chinese than it used to be, because China’s wealth has risen faster than that of the rest of the world. “I’m not so afraid of that capital going away . . . .” Who would disagree? Even bears on China do not expect Chinese capital to *decline*. “If China does well, the flow of Chinese capital will continue. If China does poorly, capital will leave China rather rapidly and seek out foreign investments . . . .” OK, but if China does poorly, there will be less capital to “flow” out of China. Chinese prosperity will be better for the rest of the world than some sort of depression in China would be. (But this “flow of capital” talk is confusing. I thought you were talking about *demand for assets*, which certainly would be dampened by any depression in China, regardless of where capital was “flowing.”)
Makes me wonder, how does Tyler invest his $. Has he ever outlined his portfolio?
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