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"Low US growth potential is not going away," says Juliette Declercq, founder of JDI (a boutique institutional advisory service firm). She is an excellent macro strategist (ex JP Morgan, Morgan Stanley, Stone Milliner), whose views are rarely publicly available due to the nature of her business. This interview develops her views on multiple assets and regions. The most interesting for me is her comments on the US economy and inflation; namely, expect continued low growth and disappointing inflation. She believes that "for now, the bottom-line is that inflation is unlikely to surprise positively." Her points are very interesting, given the current consensus for higher inflation in 2018. The transcript (pdf) is easy to access and if you click on the podcast, you might wish to skip the first 20 minutes. To access the charts, you'll have to register as explained on the page (free and relatively painless process).
The erosion of natural capital poses threats to continued national and global prosperity, yet political and economic systems are unprepared for responding to that risk. This research report (written by Francois Cohen, University of Oxford, et al.) goes through the issues and makes some critical recommendations that are worth reading. Firstly,
all natural capital – including minerals, resources, fossil fuels, but also valuable ecosystem assets and natural infrastructure – could support greater prosperity if it were more appropriately valued and hence more efficiently used. Secondly, critical natural capital, such as a stable climate and well-functioning ecosystems should be protected with governance regimes based on scientifically informed political decisions. The report makes a number of specific suggestions which are worth bearing in mind by all investors. Indeed, as this report concludes, "quantifying the wealth derived from natural capital can help improve natural resource management."
There might be some logic to the on-going rise in asset prices, but are investors, desperate for higher yields, becoming increasingly incautious? Investors approve of the idea of allowing for a "margin of safety" (in the event things going wrong) when buying an investment opportunity. Yet, the worrying part is that we might be observing, today, the human motive to profit from remaining ignorant; i.e. "the trend is your friend" as they say on Wall Street. Rather than seeing this as human irrationality, new research published by the American Psychological Association, actually found that those who choose to be ignorant, actually anticipate regret. And "deliberate ignorance is more likely the nearer the event approaches." Humans will be humans; therefore, this is a good point to remember when faced by increased uncertainty. Rather than being driven by the fear that we might regret discovering something better left unknown, not allowing for a sufficient margin of safety today may become regrettable for the future.
from remaining ignorant; i.e. "the trend is your friend" as they say on Wall Street. Rather than seeing this as human irrationality, new research published by the American Psychological Association, actually found that those who choose to be ignorant, actually anticipate regret. And "deliberate ignorance is more likely the nearer the event approaches." Humans will be humans; therefore, this is a good point to remember when faced by increased uncertainty. Rather than being driven by the fear that we might regret discovering something better left unknown, not allowing for a sufficient margin of safety today may become regrettable for the future." data-media="http://assetcircle.com/wp-content/uploads/2017/11/5a16d847285fb947806018-e1511446613849-450x600.jpg" style="clear: both;">
In this new paper from Research Affiliates, "The Bubble That Never Came", the authors make the interesting point that investors should stop looking at first order information (yields) to determine their tactical views on bonds. Instead, investors should make the effort to estimate the current risk premia offered by the market given the current macro-economic environment. The authors are proposing a sound methodology that involves estimating the theoretical equilibrium rate using smoothed inflation and gdp growth rates. They write: "All in all, bonds are not as unattractive as a simple comparison of their yields may suggest." This paper suggests that investors have to be careful not to jump the gun too fast when hearing the screams of rate normalization.
Despite economic figure showing close to full employment in the United States, the developed world is in a mess, driven to a large extent by the actions of central bankers with policies of QE, ZIRP and NIRP. Economists are focusing on the wrong figures says this commentary by Price Value Partners (30th October 2017). For example, US unemployment figures of 4% disguise the fact that there is very high unemployment amongst males in the 18-35 age group. This is a very provocative commentary piece that argues that there is something seriously wrong with developed market economies and that central bank actions are a major cause.
China’s 19th National Congress of the Communist Party in October 2017 threw few surprises (after all, the real political work takes place in the months leading up to the event). The key message that did come out was that President Xi Jinping now has a position of power unsurpassed by any other leaders since Deng Xiaoping and Mao Zedong himself. Xi’s vision envisages the supremacy of the Communist Party in China over all other centres of power, including the Government and the army. Domestically, it entails a shift back towards a more centralised, state controlled economy. Internationally, initiatives such as the One Belt, One Road strategy of creating China centred trading routes reflects a vision of a stronger China standing as an equal alongside Western democracies and willing to develop on its own terms. Understanding these issues is of critical importance to all market participants. This insightful paper by the Brunswick Group, the global advisory group, concludes that "China is set to achieve a long-standing goal to become 'moderately prosperous society' in 2020." What is more clear is that Xi Jinping and his inner circle will shape China's future; the implications will be felt far beyond China's borders.