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Bubbles or stagnation: Pick your poison (or how Summers and Trump are brothers)
Capital Markets
<p>     </p> <p>While writing a column on how and why financial bubbles are created, I was interrupted by Professor Lawrence Summers’ typically bombastic article in the FT. “Secular stagnation”, “hysteresis” and being stuck at the zero bound require that governments borrow a lot more to provide fiscal stimulus, Summers argued. Only by that means can the world free itself from the torpid pull of deflation and slow or negative growth. (Please do not worry if secular stagnation and hysteresis are not terms you understand. You will get the picture anyway.)</p> <p>As I wrote last week, China most likely will do as Summers now recommends. China will do so because it must continue to grow, and it is only by continuing massive construction projects that it can do so. The fact that China has built too much in the last 10 years and has a bubble in real estate will not deter the Chinese. They will add to their bubble until some outside event intervenes. But as I said, bubbles cannot inflate forever.</p> <p>Summers seems to be recommending that the rest of the world emulate China: No bubble is too dangerous to be avoided. Despite the high prices of financial assets and real estate, the world’s governments, presumably led by the U.S. government, should borrow in order to inflate those bubbles still further. Why, according to Summers logic? Because the spending will be counted as GDP, assuring growth.</p> <p>This is the perfect time for such borrowing and spending because interest rates are low and the world is seeking additional safe assets, Summers asserts. I assume he means that governments should borrow long, but he does not specify.</p> <p>The choice, Summers seems to be saying, is between super-bubbles and relative stagnation. He chooses super-bubbles.</p> <p>I disagree with Summers. First, as I wrote here, I think the global supply of investable funds is about to shrink. Therefore governments that borrow heavily may find their paper in less demand. Second, bubbles do not pop conveniently. They pop when the world is least prepared for them. And, even worse, the world cannot prepare for them to pop because the natural process of popping is self-reinforcing.</p> <p>Summers and some other macroeconomists think they have the answers to how to deflate a bubble gently. They are arrogant beyond words. No one has managed to achieve such a thing. The U.S. did as well as anyone ever has in 2008-2009. Summers says the U.S. was late in dealing with the bubble and it could have done much better. That is true only if one assumes that politics is capable of doing something early and perfectly. That assumption would be contrary to human nature.</p> <p>Professor Summers strikes me as an angry man. He is not happy with the world as it exists, and he is willing to run large risks to change it. In that regard, he is in company with many Americans of all political stripes. Everyone seems angry about something. And therefore many people are willing to adopt radical policies in order to change what they do not like. Thus Trump and Summers are speaking the same language, though either might be horrified to discover that was true.</p> <p>I will be writing more about the theory of financial bubbles over the next few weeks. It remains an important subject because bubbles affect the entire financial system, as well as the economy, for years after they have popped. I will leave you with one thought about bubbles for today: Historically, the dangerous financial bubbles all have been created by </p>
What we're reading: The global hangover and the Valley's Simon and Garfunkel
Capital Markets
<p>From a flipside view on the global economic slowdown, to an intimate peek at Silicon Valley's most legendary duo, here are some great reads we saw this week.</p> <p>World’s economic slowdown is a hangover not a coma. The popular diagnosis is that the global economy is doomed to decades of secular stagnation. But what if this is wrong? Could the world economy instead be in the later stages of a debt “super cycle”? Financial Times (paywall)<br /> China's monetary-policy choice. The popular line  of thinking is that China growth continues to slow due to long-term structural factors, such as demographic transition. But, so far, few studies have indicated that structural factors are adequate to explain the extent of the decline. Does a more convincing answer lie in China  monetary-policy stance? Nikkei<br /> Speaking to Steve Wozniak was like ‘taking to Garfunkel about Paul Simon,’ Aaron Sorkin says. Sorkin, screen writer of the cinema biopic  “Steve Jobs,”reveals how his conversations with Apple co-founder  Steve Wozniak offered intriguing insight in Silicon Valley's legendary odd couple. Business Insider<br /> From Fifth Avenue penthouse to Hong Kong jail. A remarkable story of how an American socialite became an unwitting drug mule for crystal meth. US philanthropist Elizabeth Kummerfeld had long been falling for online African cash scams, but the one she walked into in 2014 would land her in a Hong Kong prison cell. South China Morning Post (paywall)<br /> An odd way to make friends. At first glance, Russia's invasion of Syria is a sure fire way to lose friends and alienate people - but that's not the intent. To the contrary, the invervention was intended to build relations. It's not working. The Economist (paywall)</p> <p>Photo: YouTube</p>
The Week Ahead: Fed speeches; BoJ releases minutes
Capital Markets
<p>(Note: all times HKT)<br /> Good afternoon. The week starts off with speeches from both the U.S. Federal Reserve and  big releases from the Bank of Japan. The market rebounded last week on the hope that the Fed will further postpone its decision to hike interest rates, while the possibility the Bank of Japan could expand stimulus helped keep Tokyo markets in positive territory. </p> <p>Investors will be listening closely on Monday then when we hear speeches from three Fed officials: Atlanta’s Dennis Lockhart; Chicago's Charles Evans, and board member Lael Brainard. On Tuesday the BoJ releases its monetary policy meeting minutes and monthly report. BoJ’s Kuroda will speak on Friday. We can also expect a slew of important macro data from Australia, Japan, the U.S. and, most importantly, China.  Here’s what else you should look out for:</p> <p>Monday </p> <p>1pm – Malaysia August industrial production – Forecast: 4% from 6.1%</p> <p>9pm – India August industrial production –  Forecast: 4.8% from 4.2%</p> <p>9pm – India August manufacturing production</p> <p>9pm – India September inflation rate </p> <p>9.10pm –  Fed’s Lockhart speech</p> <p>10.30m – Russia August balance of trade – Forecast $10.7b from $10.3b</p> <p>11.3opm – Fed’s Evans speech</p> <p>Tuesday</p> <p>5.30am - Fed’s Brainard speech</p> <p>6am – Korea September import and export prices</p> <p>8.50am – Japan September bank lending</p> <p>8.50am - Bank of Japan (BoJ) monetary policy meeting minutes</p> <p>09.30am - National Bank of Australia September business confidence </p> <p>11am – China September balance of trade – Forecast: $48.21b from $60.2b</p> <p>11am – China September exports  – Forecast: -6.0% from 5.5%</p> <p>11am – China September  imports – Forecast: -13.8% from 15%</p> <p>2pm – BoJ monthly report </p> <p>2pm – Japan September consumer confidence </p> <p>3pm – Germany September final inflation rate </p> <p>5pm UK September inflation rate</p> <p>Wednesday</p> <p> 08.30am –  Australia October Westpac consumer confidence index</p> <p>9am - Singapore Q3 YoY GDP growth rate – Forecast: -1.3% from 1.8%</p> <p>10.30am –  China September YoY inflation rate – Forecast: -1.8% from 1.3%</p> <p>10.30am – China September YoY PPI – Forecast: unchanged</p> <p>8.30pm – India September balance of trade</p> <p>9.30pm – U.S. September retail sales</p> <p>Thursday </p> <p>9.30am –  Australia September unemployment rate – Forcast: 6.3% from 6.2%</p> <p>10am – South Korea interest rate decision </p> <p>1.30pm – Japan August YoY industrial production  final – Forecast: 0.2% from 0%</p>
The hidden debt burden of emerging markets
Capital Markets
<p>LIMA – As central bankers and finance ministers from around the globe gather for the International Monetary Fund’s annual meetings here in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolized by the problems of the advanced economies struggling to recover from the 2008 financial crisis. Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.</p> <p>While no two financial crises are identical, all tend to share some telltale symptoms: a significant slowdown in economic growth and exports, the unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal in capital inflows. To varying degrees, emerging economies are now exhibiting all of them.</p> <p>The turning point came in 2013, when the expectation of rising interest rates in the United States and falling global commodity prices brought an end to a multi-year capital-inflow bonanza that had been supporting emerging economies’ growth. China’s recent slowdown, by fueling turbulence in global capital markets and weakening commodity prices further, has exacerbated the downturn throughout the emerging world.</p> <p>Click here to read more</p> <p>© Project Syndicate</p> <p>This story originally appeared in Advisor Perspectives.<br /> Photo: Wiki</p>
The Tesla graveyard: Elon Musk calls out Apple
Venture Capital
<p> Year to date, Tesla Motors Inc TSLA 2.66% has outperformed Apple Inc. AAPL 2.39%, gaining nearly 2 percent versus a 1 percent decline in Apple.<br /> Speaking with a German newspaper, Tesla CEO Elon Musk dismissed concerns that Apple was poaching the company's talent, saying that Apple has "hired people we've fired."<br /> Musk added that, "we always jokingly call Apple the 'Tesla Graveyard.' If you don't make it at Tesla, you go work at Apple."</p> <p>Read more at Benzinga, here.<br /> Photo: Thomas Hawk</p>
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Video: Incubator exec shares what she sees as the next big thing in fintech
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Video: Big banks can make a big difference in fintech
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Video: 'Robo advisor' is for technophobes
April Rudin, founder of The Rudin Group, explains why she thinks we should lose the term "robo advisor:"  Technology should be an advisor's best friend.