Economy Archives - Page 114 of 133 - the patient investor

July 1, 2012

China’s failed gamble for growth

Zarathustra: The idea of this gamble is simple. With the financial crisis in 2008 hitting the developed world, it naturally affected external demand. The Chinese knew these. At the end of 2007, trade surplus accounted for more than 7.5% of GDP. Currently, the same number is at its low single digit, probably 2% or so. No longer is China’s growth driven by trade. It is now driven largely by domestic demand.

And this is where the gamble lies. The massive stimulus was meant to stimulate domestic demand for a few years, in hope that perhaps the rest of the world will recover, and hence external demand would have recovered. Or else, in hope that domestic demand will become strong enough and sustainable so that the economy no longer depends on the health of the rest of the world…..

via China’s failed gamble for growth.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

June 25, 2012

Anna Schwartz, monetary historian

Anna Schwartz died aged 96 last week. Often called the “high priestess of monetarism” she co-authored the classic A Monetary History of the United States, 1867-1960 with Milton Friedman in 1963. Mrs. Schwartz joined the National Bureau of Economic Research in New York in 1941 and continued to work there for more than 70 years. She leaves a lasting legacy.

If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset. The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates …..

~ Anna Schwartz, as quoted in the Wall Street Journal, October 2008.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 24, 2012

Quantitative easing and the (lack of) responses in bond yields

…When the Fed was performing quantitative easing, treasury yields rose as the economy recovered and inflation expectation rose. On the other hand, treasury yields fall when the Fed was not performing quantitative easing as the period without quantitative easing coincided with the weakening of the economy as well as the deterioration of the Euro Crisis.

10-Year Treasury Yields

via Quantitative easing and the (lack of) responses in bond yields.

Comment:~ Quantitative easing (QE) expands the stock of money in the economy as the government, through its agent the Fed, issues new banknotes (or equivalent deposits) in payment of goods and services. The resulting inflation would drive up yields.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 22, 2012

Bernanke Acknowledges Treasury Strategy at Odds With Fed Policy – WSJ

Kristina Peterson and Jon Hilsenrath: The Fed’s [Twist] program is designed to work by taking long-term bonds off the market, nudging investors into riskier assets, such as stocks, that could help boost the economy. The problem is that while the Fed has been snapping long-term bonds off the market, the Treasury Department has been ramping up its issuance of long-term debt to take advantage of historically low long-term rates. Since October 2008, the average maturity of outstanding marketable Treasurys has climbed by nearly 32%, reaching almost 64 months in May, the agency said earlier this month. That’s its highest level in a decade.

via Bernanke Acknowledges Treasury Strategy at Odds With Fed Policy – Real Time Economics – WSJ.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 20, 2012

Fed Extends Operation Twist – WSJ.com

U.S. Federal Reserve officials extended through the end of the year a program meant to drive down long-term interest rates and signaled that they were “prepared to take further action” if needed amid heightened worry about the economy’s performance.

By continuing the program, known as “Operation Twist,” the Fed will buy $267 billion in long-term Treasury bonds and notes while it sells short-term Treasurys. The program had been set to expire this month.

via Fed Extends Operation Twist – WSJ.com.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 20, 2012

Westpac: China credit supply outstrips demand

Phat Dragon is placing the most value on new information regarding credit demand and supply. It is credit growth that tells us more about the shape of activity later this year than any other macro indicator……the supply side of the credit equation is moving decisively higher (greater policy emphasis, increased willingness to lend) but ……sluggish demand for loans is holding the system back. Indeed, the June quarter observation for “loan demand” (bankers’ assessment) fell to 12% below average, lower even than the Dec-2008 reading, even as the “lending attitude of banks” (corporate assessment) rose for a second straight quarter and the ‘easiness’ of the monetary policy stance (bankers’ assessment) rose to 21% above average.

via Westpac: Phat Dragon – a weekly chronicle of the Chinese economy.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 20, 2012

Econbrowser: Europe in 1931

What happened in 1931 to turn a bad economic downturn into the Great Depression? Dramatic events in Europe included failure of Credit-Anstalt, Austria’s biggest bank, in May of 1931. That was followed by bank runs in Hungary, Czechoslovakia, Romania, Poland, and Germany. As is often the case historically, the financial problems were a combination of a banking crisis….and a currency crisis…..

In 1931, countries faced doubts about whether they would stay on the gold standard, and had a choice of either to abandon gold or else to inflict further domestic economic damage in the form of monetary contraction and price deflation. Those doubts and their damage ended up bouncing across countries like a ping pong ball.

via Econbrowser: Europe in 1931.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 20, 2012

History of the Gold Standard in the 20th Century – James Rickards

James Rickards, senior managing director of Tanget Capital Partners and author of “Currency Wars: The Making of the Next Global Crisis,” talks about inflation and the gold standard in the 20th century.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 20, 2012

Inflation/Deflation Face-Off: Harry Dent v. James Rickards

At the latest Casey Research conference, Recovery Reality Check, James Rickards, senior managing director of Tanget Capital Partners and author of Currency Wars: The Making of the Next Global Crisis, debates Harry Dent, founder and president of HS Dent Foundation, on the subject of which is more likely in the near-term economic future, inflation or deflation.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

June 20, 2012

China in deflation, and how to reflate it at all costs

Zarathustra: [Chinese] over-investment over the past many years, and particularly in the years after the financial crisis, has created massive over-capacity across the economy that no one is really able to quantify. We have already got over-building in the real estate sector which resulted in massive number of empty apartments and empty shopping malls…. We are also aware of the over-capacity and inventory build-up in various sectors like coal and steel….. steel industry profits have fallen by 96.7% in the first four months of the year compared to the same period a year ago….. actual CPI figures are already in negative territory on a month-on-month basis. In short, deflation is already here for China….

via China in deflation, and how to reflate it at all costs.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.