Saturday, July 23, 2016

some thoughts on state of the economy july 2016

my comments on

a lot of stress build up. when you see more and more incidents of shootings and vehicular attacks, it means the stress is so tremendous to push people over a threshold.
average citizens in developed markets DM are favouring changes.
brexit occurred and recent polls show once you conduct it anonymous, you have more preferring trump. not so inconceivable anymore.
"Donald Trump as President of US today is no longer a myth compares to a year ago as he has officially accepted the Republican party presidential nomination."
I fear the past 20 years had been an unprecedented confluence of factors favouring Singapore's GDP growth and incomes.
Moving forward, i fear that is about to come to an end.

"Turning the attention to Singapore, the last ten years or so had been an economic fairy tale for Singapore. Don't believe? "
I prefer

yes and attitudes towards immigration has shifted since 2011.
not unlike DM.
and I think the average singaporean is actually overpaid though there are some fundamental communications skills the average singaporean has that is above their global peers in the region.

"To further breakdown in the table below, you can see that the last 15 years growth of foreign labour from year 2000 to 2015 is actually higher than the 30 years period from 1970 to 2000.
Expectations of salary were barely in checked. Almost everyone think that they were underpaid due to the rising median income and of course, the rising cost of living too. Most wanted to assume managerial posts with higher than respectable salary. Yes, even those who had only freshly entered the workforce for a few years were having extremely high expectations.

increase in productivity leads counterintuitively to lower employment rates.
and thus lower mean income of the whole population.
leverage of easy money does not lead proportionately to income growth but rather asset prices inflation. Property is one area. Stocks is another.
"In reality, capabilities and work experiences lag behind salary increase. Yes, productivity increased but arguably in my opinion at a much slower rate compare to the eruptive growth of the economy caused by leverage of easy money and the influx of foreign labour. "

and the funny thing is that it CAN end safely but it depends on a lot of factors.
"Hence, the six to seven years of post GFC period had been an astoundingly and unusually successful one. "
I still think it was mainly the liquidity.
"In the main, it was China driving the world economy, constructing new apartments, roads, railways, irrigation, sewage systems, commercial centers etc largely driven by State-owned Enterprise (SOE). And this was of course fuelled by the cascade of debts pouring out from the central bank. In particular, the ballooning shadow banking which is the unregulated credit in nonbank entities within the country has been a specter!  "

this is just the hot money circulating. they will continue to flow around for a while, elevating country after country until CBs (central banks) either reach a conclusion of the NIRP or ZIRP is not working or they restart fiscal policies.
however, volume is dropping and VIX is low and fund managers are reducing their equity allocations so time will tell if they can entice money into the markets further or this is just baseless pricing without demand.
don't forget the stock market is still a market meaning supply and demand and all sorts of crazy bidding.
meanwhile, even while I wonder how long can it last, until the evidence states otherwise, I am staying bullish on us equities.
Dow is mid 18,000s today while in 2007 peak, it was only barely hitting 14,000 points. It is the same bull case for Nasdaq peaking at >5,000 points compared to the pre-crisis of 2,800 points.
Markets in Asia and Australia were slightly more modestly priced today due to the worries of China engine running out of steam having more than significant impact to regions here. This is especially after Black Monday in August 2015 when China surprised the world with the devaluation of their yuan.  "

helicopter money can successfully bring a country out of the doldrums in a short time for a short time, given their demographics and economy are in place (plugged into the world, growing skilled base - skills not education the way forward).
but it must not be blatant. blatant rapid monetary supply expansion rapidly leads to disillusionment of the monetary standard. ie. hyper inflation and flight to primitive/ancient standards of money.

"CBs still have lots of ammunition to stimulate the market - eg giving every household a cheque to spend! Still sometime before humans run out of solution." 

we are in unchartered terrority.
dow crossing 20k is not by itself something to be alarmed.
it is the speed of sentiment osmosis and inflection point of sentiments.
every point in history, people can stay alarmed for long periods of time before something changes.
witness 2001-2007 and 2009 to today.

"The stock market is run by perceptions and not reality. If we already can have negative interest rate, Dow crossing 20k will not be jaw dropping! "