David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Last Lifelines Crumble for Many Greek Families as New Conflict With Creditors Looms

    This article by Nektaria Stamouli for Wall Street Journal detailing the human cost of Greece’s economic retrenchment may be of interest to subscribers. Here is a section:

    The three-way conflict simmered throughout 2016. Eurozone policy makers say its resolution can’t be put off much longer. Prime Minister Alexis Tsipras is considering the option of snap elections if the creditors don’t soften their positions.

    The IMF is holding a hard line partly to put pressure on the eurozone to lighten Greece’s debt burden, say people involved in the negotiations. IMF officials have said Greece’s economy is already overtaxed.

    New taxes that came into effect on Jan. 1 are squeezing household incomes further. Economists say even-higher income taxes—in the form of lower tax-free income allowances—could add to a mountain of unpaid taxes. Greeks currently owe the state €94 billion ($99 billion), equivalent to 54% of gross domestic product, and rising, in taxes that they can’t pay. Three in four Greeks can’t pay household bills on time, according to the 2016 European Consumer Payment Report, a private-sector survey.

    Extended families often rely on grandparents’ pensions. Further cuts in that lifeline could end hopes for a return to economic growth. Unemployment remains more than double the eurozone’s average at 23%. About 74% of the jobless have been out of work for more than a year and thus receive no benefits.


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    Perils of the Icarus Trade as the World Runs Short of Dollars

    Here is the opening of this topical article on the Trumpian outlook for stock markets in 2017, by Ambrose Evans-Pritchard for The Telegraph:

    Bank of America calls it the Icarus Trade. Global stock markets will surge by another 10pc in a parabolic 'melt-up' this quarter, akin to the final stage of the dotcom boom.

    This will be followed by a mirror 'melt-down' later in 2017 as the US Federal Reserves squeezes global liquidity, and rising bond yields puncture the Trump reflation trade.

    Michael Hartnett, the bank's investment strategist, says there will be a perfect moment for the 'Big Short' within a few months, but first we must all wait for the speculative fever to pass. The warning signs of a market top are not yet flashing red.

    The Bull/Bear ratio is a frothy 3.4, but far from extreme. The cash reserves of money managers have fallen to a 19-month low of 4.8pc. The danger zone is nearer 4pc. Powerful rallies tend to draw all but the most steely resisters into the vortex first.

    Bank of America recommends "laggard risk assets", singling out British assets as the ultimate unloved play. We in the UK may think that the headline rise of the FTSE-250 over the last twenty months is not so bad, but for sophisticated investors who think in dollar terms it has been a 20pc haircut. Britain PLC is cheap.

    Picking the last pennies off tracks before an incoming train is only for the nimble and brave.  Mr Hartnett says bond stress is creeping up on the markets. The peak-to-trough losses for holders of US Treasuries over the last five months are already greater than before the 1987 crash, the Orange County and Mexico blow-ups in 1994, and is not far short of the 'taper tantrum' in 2013.

    The great unknown is where the pain threshold lies in a global system with debt ratios that are now roughly 40pc of GDP higher than just before the Lehman crisis. Bank of America fears a further rise in yields of 50 to 75 basis points may be enough to trigger a "financial event".

    HSBC's latest global outlook is even darker. Indeed, it is astonishing. The bank expects yields on 10-year US Treasuries to push a little higher to 2.5pc before crashing back to historic lows of 1.35pc by the end of the year, taking global yields with them.

    Markets will conclude by the summer that Trumpian stimulus does not add up to much, and that the reflation narrative is a hoax. "We believe that equities are walking a tightrope, and there is a fairly long way to fall," said the bank.

    While I do not take a view on stock prices, HSBC's outlook is broadly in line with my own. The world cannot easily withstand the sort of Fed tightening now being etched into forecasts by the macro-economic fraternity.

    The Institute of International Finance says debt has reached $217 trillion, a record ratio of 325pc of GDP. What is remarkable is that even in mature economies -  trying to 'deleverage' - the ratio jumped by 6pc of GDP to 390pc over the first nine months of last year.

    There is almost nowhere left to hide. Corporate debt in emerging markets has risen from $6.5 trillion to $25.5 trillion since Lehman, with the 'credit gap' signalling danger in China, Hong Kong, Singapore, Thailand, Saudi Arabia, Chile, Turkey, and Indonesia. Total off-shore dollar debt has risen fivefold to $10 trillion since 2000.

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    Dimon Praises Cabinet Picks, Says He Is Optimistic About Trump

    JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he’s optimistic about President-elect Donald Trump’s administration because of the group of people he’s assembled to fill his cabinet.

    “If you want to win the game, put Tom Brady on the field,” Dimon, 60, said in an interview Thursday on CBS This Morning. Trump’s “hired a lot of professional people, people that are experienced, successful, smart and patriotic,” he said.

    Dimon’s comments came amid this week’s marathon of Senate confirmation hearings. All of Trump’s picks are expected to win confirmation, barring unexpected revelations or major gaffes.

    Dimon praised Steve Mnuchin, Trump’s pick for Treasury secretary, saying the former CEO of OneWest Bank Group LLC is “very qualified” and “wants to do the right thing.” Despite rumors last year that he was under consideration for the Treasury job, Dimon said Thursday he wasn’t offered the position, adding that he hasn’t finished his work at JPMorgan and at the Business Roundtable, an association of U.S. CEOs.

    Rex Tillerson, Trump’s nominee for secretary of state, is “respected by everyone he deals with around the world,” Dimon said. Tillerson, the former CEO of Exxon Mobil Corp., has faced criticism for his dealings in Russia in the run-up to his confirmation. He was pressed on U.S.-Russia relations during his Senate confirmation hearing on Wednesday, responding that Moscow has acted against U.S. interests and urged an “open and frank dialogue” on areas of mutual concern.

    “Rex Tillerson is a class act -- he’s smart, he’s patriotic,” Dimon said. “Almost every big company has dealings in Russia; that doesn’t mean he’s not a patriot.”

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    The Robot Rampage

    This article by Chris Bryant and Elaine He for Bloomberg may be of interest to subscribers. Here is a section:

    Even an America-first advocate like Trump should be concerned by this because people joining the middle classes in Vietnam, Mexico or Egypt will be potential customers for U.S. goods exporters.

    Why might it happen? Back when the U.S. middle class flourished after World War II, factory automation was expensive. Robots were limited to only a few sectors -- mainly the auto industry -- and those automatons weren’t that sophisticated. Wages rose thanks to improved productivity, but workers weren’t completely made redundant by the machines.

    Poorer countries in Asia or Africa probably won't be that lucky. Today's robots are far more capable, are being deployed in a wider range of industries, and are cheaper too. That leaves less room for wages to rise before humans are priced out of the labor market. More low-cost automation also means manufacturing can be re-shored to developed economies.

    German robot maker Kuka AG, acquired last year by China’s Midea Group Co., estimates a typical industrial robot costs about 5 euros ($5.28) an hour. Manufacturers spend 50 euros an hour to employ someone in Germany and about 10 euros an hour in China.

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    Latest memo from Howard Marks: Expert Opinion

    Thanks to a subscriber for a link to this letter which may be of interest. Here is a section:

    I’ll end this section by sharing my latest epiphany on the macro.  I realized recently that in my early decades in the investment business, change came so slowly that people tended to think of the environment as a fixed context in which cycles played out regularly and dependably.  But starting about twenty years ago – keyed primarily by the acceleration in technological innovation – things began to change so rapidly that the fixed-backdrop view may no longer be applicable.

    Now forces like technological developments, disruption, demographic change, political instability and media trends give rise to an ever-changing environment, as well as to cycles that no longer necessarily resemble those of the past.  That makes the job of those who dare to predict the macro more challenging than ever.

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    Bitcoin Falls 6% After PBOC Shanghai Inspects Trading Platform

    This article by Linly Lin for Bloomberg may be of interest to subscribers. Here it is in full: 

    Bitcoin drops 6% after PBOC Shanghai says it conducted on-site inspection at Shanghai-based BTCChina.com to check for any violations of market manipulation, money laundering and safety of customer funds.

    Bitcoin prices have plunged 20% from record high of $1,091.7 on Jan. 4

    Current trading price at BTCChina.com, platform tailored to Chinese clients, dropped 9% from 24-hour high

    Trading volume was 1.5m bitcoins on BTCChina as of today, 1.2m on Huobi.com today, 1.8m on OKCoin.cn

    NOTE: Bitcoin trading could only accommodate a small fraction of funds leaving China, Bloomberg Intelligence says

    NOTE: BTCChina, Huobi.com, OKCoin.cn are major bitcoin trading platforms providing services to Chinese clients

    NOTE: Jan.9, China to Study Bitcoin Custodian Platform: Securities Journal.

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