The way of the magpie: Know your enemy, don’t bother fighting them

Harold Mitchell wishes that politicians would stop throwing mud at each other:

…..The great Sir Robert Menzies never mentioned Labor leader Arthur Calwell by name with that wonderful plummy accent of his. He would occasionally refer to the “leader of the opposition” but only if he really had too.

But now leaders everywhere end up making us wonder if any of them are up to it because they don’t stop deriding each other. That’s about all that Trump and Clinton do. The net effect on much of the population is to blank out policy discussion with negativity that they think is hurting the other, but in the end discredits them all. The debates start low and go lower.

My experience in London was similar. The English elite, as they thought of themselves, attacked everyone: Germans, French, Scottish, Irish and everybody south of the equator. Any wonder that they lost the Brexit vote because they’d convinced the people that the rest of the world was no good.

….Waleed Aly, at a brilliant Andrew Olle lecture last Friday, said that you never hear McDonald’s and Burger King in America run down each other. They just want people to [buy] hamburgers. So if you’re trying to build public trust, ….stop attacking each other. No one appreciates negativity. You use a lot of energy and important things don’t get the elevation they really need…..

Voters need to wise up. He/she who throws the most mud is normally the dirtiest.

Source: The way of the magpie: Know your enemy, don’t bother fighting them

China faces debt trifecta


Given the size of its economy – and the high stock of debt for a country at its stage of development – China’s leverage will be a global issue in the future, not just a China issue.

Total debt to GDP in China was around 250% at the end of 2015, the highest among emerging economies…. Over the medium term, we expect more debt creation in China: Leverage is unavoidable for China to achieve its growth targets.

Corporate debt – at more than 120% of GDP – remains the key cause for concern in China….

What will China do in dealing with its mounting leverage? Policymakers appear to have two options.

Option 1: China moves more aggressively to remove the moral hazard in its financial system. That would be the prudent thing to do but would release pent-up perils; defaults would climb, and banks would rack up losses.

Option 2: China postpones reform and instead tries to patch the current system (“kick the can down the road”). That would be safer in the short term, but the inexorable accumulation of debt would slow the economy over the secular horizon and raise the odds of a hard landing in the future.

In our base case, China will take Option 2 and move only temporarily to Option 1 in good, calm times, resulting in a slow-moving process that shifts between the two approaches……

China faces similar challenges today as Japan did in the past:

  1. The need to rebalance from investment to consumption (which Japan experienced in the 1970s)
  2. Credit- and asset-bubble risk (Japan in the 1980s)
  3. A rapidly aging population (Japan since the mid-1990s)

In dealing with their debt problems, China and Japan share an important advantage – they are external creditors. They also have important differences, however, which should make China’s deleveraging process (when it finally happens) more complicated for the rest of the world: China’s global spillover effect should be larger than Japan’s due to China’s size, its commodity and emerging market linkages and its still-evolving exchange rate regime. China has an uncertain and complex political trajectory. The rest of the world, particularly developed countries, still faces the challenge of stimulating growth following the global financial crisis. China today is facing all three of these challenges simultaneously, while Japan had the opportunity to deal with each one of them sequentially.

China seems likely to continue kicking the can down the road, digging itself into an even bigger hole.

Source: Rising Leverage in Emerging Asia Where Is It Headed | PIMCO

Australia: Infrastructure spending nosedives

From Andrew Hanlan at Westpac:

Infrastructure Activity

Total real infrastructure activity contracted by almost 10% in the June quarter 2016, to be 26% below the level of a year ago. That was the fourth year of contraction…..

Infrastructure construction work is declining rapidly. First, we had the end of the mining boom as existing projects reached completion while demand, mainly from China, contracted. This was followed by falling demand in the oil & gas sector, ending the development boom in that sector. If you think the apartment boom — driven by investor demand from China — is going to fill the hole, think again.

Weekly Investment Commentary from Bob Doll | Nuveen

From Bob Doll:

Equities may struggle until corporate earnings improve.
For the past 18 months, equities have been able to make modest gains despite declining corporate profits. This has largely been due to highly accommodative monetary policy and central banks’ willingness to engage in new easing measures. Additionally, investors have been willing to look past the earnings recession since we have not seen a corresponding economic recession. Looking ahead, we believe earnings must advance for equity markets to make meaningful gains. It is early in the third quarter reporting season, but so far the news hasn’t been favorable.

It may take another quarter before corporate earnings accelerate.
At present, consensus expectations are that earnings will decline 3% in the third quarter while revenues rise 3%. Excluding energy, earnings would be up 1% with revenues advancing 4%. Conditions should improve in the fourth quarter, with consensus expectations pointing to a 6% earnings increase…..

Source: Weekly Investment Commentary from Bob Doll | Nuveen

Financial Stability Snapshot | RBA

Financial Stability Snapshot 14 October 2016

Download the complete Snapshot 174KB Financial Stability Snapshot

Source: Financial Stability Snapshot | RBA

Blackbird – Sarah McLachlan

Great cover of this timeless Beatles song written by Paul McCartney (1968).

China: Hang Seng retreats

Steep decline on Twiggs Money Flow warns of strong selling pressure on Hong Kong’s Hang Seng Index. Breach of support at 23000 would warn of a correction to test the long-term rising trendline.

Hang Seng Index

The Shanghai Composite Index continues to consolidate between 2800 and 3100.

Shanghai Composite Index

Footsie runs into strong resistance

The FTSE 100 has run into stubborn long-term resistance at 7000/7100. Declining Twiggs Money warns of selling pressure. Follow-through below the last two weeks’ lows would warn of a correction to test 6500.

FTSE 100

DAX support at 10500

Germany’s DAX is testing support at 10500. Declining Twiggs Money Flow warns of selling pressure. Follow-through below recent lows would warn of a correction to the rising long-term trendline.


* Target calculation: 10500 + ( 10500 – 9500 ) = 11500

India: Sensex threatens correction

India’s Sensex broke below its trend channel, and is testing support at 27600. Breach would signal a correction. Bearish divergence on Twiggs Money Flow warns of long-term selling pressure. Breakout below 27600 is likely and would warn of a test of 26000.


Gold: The importance of $1200/ounce

Interest rates are rising, driving gold lower. Long-term Treasury yields are heading for a test of resistance at 2.0 percent but a lot depends on continued stability in financial markets.

10-Year Treasury Yields

The Chinese Yuan continues its devaluation against the Dollar. Any sharp movements would spur global instability and increase demand for gold. But at present Dollar appreciation proceeds at a measured pace.


Selling pressure on gold has increased, reflected by the steep fall of Twiggs Money Flow on the SPDR Gold [GLD] ETF. A larger (TMF) peak near zero would warn of a long-term sell-off.


Spot gold has paused in its descent, with a short candle on the weekly chart reflecting short-term support at $1250/ounce, but expect a test of primary support at $1200.

Spot Gold

A long-term monthly chart of gold reflects the importance of support at $1200. The high of 2009, the lows of 2013, and the recent lows in April and June, all reinforce strength at $1200. Breach of this level would signal a long-term down-trend.

Spot Gold

The ASX All Ordinaries Gold Index retraced to test resistance at 4500 after the recent breakout. Respect is likely and would signal decline to 4000.

All Ordinaries Gold Index

Stand By Me – Ben E King, 1961

Written and sung by the former Drifters front-man, Benjamin Earl King (1938 – 2015).

Crude tests key level at $50

December Light Crude is retracing to test new support at $50/barrel after the recent breakout.

December Light Crude

If we look at the longer term weekly chart we can see how important this level is. Respect of $50 would confirm the primary up-trend. There is still doubt that support will hold — and that OPEC will be able to craft an agreement that will satisfy members while restricting supply. Failure would suggest that crude will revert to ranging between $40 and $50.

Nymex Light Crude

The Pig of Happiness – Spread the love

By Edward Monkton:

Obama’s Wrong: The New Cold War’s Only Just Begun | The Daily Beast

Michael Weiss writes: “From propaganda to missile deployments, Russian leader Vladimir Putin is testing Obama’s resolve—while claiming to be America’s victim”…..

Putin has demanded, as the price for restoring at least the first frozen accord, that Washington end all sanctions against Russian officials; pay reparations for any losses sustained from those sanctions as well as retaliatory ones imposed by Russia against U.S. entities; cancel the Magnitsky Act, a landmark human rights law passed in 2012 aimed at penalizing corrupt and murderous Russian officials; reduce NATO personnel forces to levels they were as of 2000; and essentially rewrite the original radioactive disposal deal so America bears the brunt of the responsibility for it.

In response to what was, even by Putin’s standards, a risible attempt at extortion, the Russian opposition’s Leonid Volkov wrote on Facebook: “He should have asked for Alaska back, eternal youth, Elon Musk and a ticket to Disneyland.”

….what a turn for Obama, who has spent the last eight years insisting that the “Cold War is over” only to spend the eve of his departure witnessing its renascence.

The response should be to talk softly and continue polishing that big stick.

Source: Barack Obama’s Wrong: The New Cold War’s Only Just Begun – The Daily Beast

Israel Kamakawiwo’ole: Somewhere Over the Rainbow

A happy song to cheer you up when the markets are down.

Israel “Iz” Kaʻanoʻi Kamakawiwoʻole was a Hawaiian musician, entertainer and Hawaiian sovereignty activist.

His voice became famous outside Hawaii when his album Facing Future was released in 1993. His medley of “Somewhere over the Rainbow/What a Wonderful World” was subsequently featured in several films, television programs, and television commercials.

Through his skillful ukulele playing and incorporation of other genres, such as jazz and reggae, Kamakawiwoʻole remains a very strong influence on Hawaiian music.

Source: Wikipedia

Amazon to Expand Grocery Business With New Convenience Stores | WSJ is pushing deeper into the grocery business with plans to introduce convenience stores as well as curbside pickup locations, say people familiar with the matter.

The company aims to build small brick-and-mortar stores that would sell produce, milk, and other perishable items that customers can take home, these people say. Primarily using their mobile phones or, possibly, touch screens around the store, customers could also order goods with longer shelf lives for same-day delivery. Amazon will soon begin rolling out designated drive-in locations where online grocery orders will be brought to the car….

Source: Amazon to Expand Grocery Business With New Convenience Stores – WSJ

What Is the New Normal for U.S. Growth?

From John Fernald at the San Francisco Fed:

Estimates suggest the new normal for U.S. GDP growth has dropped to between 1½ and 1¾%, noticeably slower than the typical postwar pace. The slowdown stems mainly from demographics and educational attainment. As baby boomers retire, employment growth shrinks. And educational attainment of the workforce has plateaued, reducing its contribution to productivity growth through labor quality….

Figure 1
Slowing growth in working-age population and labor force

Figure 2
Variation in productivity growth by trend period

There is one other factor that I believe is a major determinant of low productivity gains and hence GDP growth. Private investment — a major contributor to productivity improvement — is declining as a percentage of GDP.

Source: Economic Research | What Is the New Normal for U.S. Growth?