In this briefing:
- Stimulus/Bond Index Products/China-US Tension/Huawei Denials/Military
- FLASH: UK Retail Sales Normalise for End-2018
- The Burden of Too Big Government
- The Black Elephant Has Trumpeted
- Debt Ratios Do Matter
1. Stimulus/Bond Index Products/China-US Tension/Huawei Denials/Military
China News That Matters
- Pump it up, but don’t flood the place
- Roll up, roll up: China touts bonds
- Sino-US trade talks shift to Washington
- Trust me, I’m just a sesame seed
- No longer playing catch up? The “world-leading” PLA
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
2. FLASH: UK Retail Sales Normalise for End-2018
- UK retail sales retreated to their still-bullish trend level in Dec-18. A higher than usual share of consumption appears to have been pulled forward for Black Friday.
- The significantly weaker outcome for December trims my monthly GDP forecast to 0.0% but leaves 4Q18 at 0.3% q-o-q. The earlier reversion to trend removes that source of depression from growth in the new year.
3. The Burden of Too Big Government
From our very own “Austrian” Leigh Skene:
Wars in old times were made to get slaves. The modern implement of imposing slavery is debt. Ezra Pound
Governments used public sector balance sheets to bail out private financial institutions and assist private companies to emerge from bankruptcy in the GFC. These actions transferred credit risk from the private to the public sector, yet falling nominal interest rates minimised, and in some cases froze, the cost of servicing the mounting government debt until late 2016. Since then, many borrowers have paid rising interest rates on increasing amounts of debt. Debt service charges are rising faster than nominal GDP in a growing number of nations as a result. It is estimated that the US federal funding requirement will rise from minus US$ 700bn to US$ 2tr in 2022.
4. The Black Elephant Has Trumpeted
In The United States: 2019 Set Fair but Then? we wrote that we do not expect another Fed rate hike until June 2019, at the earliest with an even stronger probability that the next move from the Fed in this cycle will be a cut in 2020. We expect on trend growth in the US over the next 12 months as the free money spigot continues to shut marginally. Sentiment towards Asian markets – once it is realised that Asia’s economic performance and growth in real economic activity will again surpass advanced economies by a wide margin – will change for the better this year. It’s about time.
5. Debt Ratios Do Matter
Monetary diarrhoea has inflated the debt structure.
The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns.
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