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Gaps, growth and headwinds
Capital Markets
<p>Low rates and oil price fall are responses to output discrepancy</p> <p>Global growth is uninspiring. The global economy plods along with aggregate GDP growth of around 3 per cent to 3.5 per cent and similar levels of inflation. This has been true for the past several years and many expect it to continue for at least the next couple. This is partly because trend growth rates in major economies appear to have slowed from the pre-crisis pace. But slow growth is not just a supply-side condition. A gap between global aggregate demand and supply for goods and services persists, even though global interest rates - nominal and real, short and long maturity - remain at historic lows.</p> <p>Earlier this year, with oil prices falling, the global economy appeared poised to accelerate. While low oil prices represent a transfer of income from oil exporters to importers, conventional macroeconomic models predict they should boost global aggregate demand as long as the propensity to consume and invest by the importers exceeds the corresponding propensities by the exporters. Moreover, by reducing headline inflation, low oil prices provide central banks with room to ease monetary policy.</p> <p>This year, no fewer than 40 central banks have taken that opportunity, while among the major economies only three - Brazil, South Africa and the Philippines - have raised rates. In addition, the European Central Bank has embarked on a major quantitative easing programme, while the Bank of Japan has doubled down and greatly expanded the quantitative and qualitative easing programme it launched in 2013.</p> <p>And yet despite low oil prices, waves of QE and rate reductions by many central banks, world GDP growth in 2015 is expected to come in at a pedestrian 3 per cent, even though one year ago, when little of the stimulus from oil, rates and QE was factored in, the consensus projection for growth was 3.6 per cent. The same is true for the 2016 outlook: a year ago the consensus for 2016 was for 3.8 per cent growth, but now has been marked down to 3.5 per cent. And if history is any guide, it may only be a matter of time before the incoming data for 2016 again disappoint the more optimistic consensus from the prior year.</p> <p>So why isn’t growth accelerating? The simple answer is that falling oil prices, low interest rates and monetary accommodation are not random windfalls, but are instead responses to an excess of global supply relative to global aggregate demand.</p> <p>The decline in expectation for future productivity growth is a major source of the “new mediocre” of sluggish global demand falling short of ample global supply. The connection is as follows. Decisions by households and firms to invest or consume today depend in part on expectations for future income or profit growth, which in turn will be tied to future productivity growth. If workers expect modest or no pay increase in the future and firms scale back their views of future profits, they cut back today on consumption and investment.</p> <p>According to classical economics, the price level, bond yields, stock prices, exchange rates and commodity prices in theory should adjust even in a low productivity growth world to clear global markets at full employment. However, since Keynes, we have understood that the mechanism can break down, and when it does the global economy clears at a level of aggregate demand that falls short of supply. Monetary policy has adjusted to this reality. Monetary accommodation has boosted stock prices despite reduced prospects for productivity growth, while exchange rates reflect divergences - actual and prospective - among these accommodative national monetary policies.</p> <p>Yet while growth in demand has been dis</p>
Daily Scan: Asia caps the week on a high note; Europe continues gains
Capital Markets
<p>Updated throughout the day</p> <p>October 16</p> <p>Good evening everyone. With stimulus hopes at full tilt both in China and in Japan, Asian shares posted one of its best days today with the Hang Seng Index up 0.88%, the Shanghai Composite up 1.60%, and the Nikkei Average up 1.08%. Here’s how the region’s largest bourses did this week:</p> <p>Day<br /> Week</p> <p>Hang Seng Index<br /> +0.88%<br /> +0.69%</p> <p>Hang Seng China Enterprises Index<br /> +0.90%<br /> +2.23%</p> <p>Shanghai Composite<br /> +1.60%<br /> +6.13%</p> <p>Shenzhen Composite<br /> +1.28%<br /> +7.66%</p> <p>Nikkei 225<br /> +1.08%<br /> +3.14%</p> <p>Straits Times Index<br /> +0.42%<br /> +1.56%</p> <p>European indices meanwhile are looking to close on a high note too, though the U.K.’s FTSE 100 still seems to be on track for its first weekly loss in a month. Its currently up 0.76%, Germany’s DAX is up 0.75%, and France’s CAC is up 0.73%. As for Wall Street, S&amp;P minis are signaling a 0.12% pop at the open.</p> <p>Here’s what else you need to know:</p> <p>EU backs Turkey migrant action plan. EU states have backed an action plan with Turkey, which it is hoped will ease the flow of migrants to Europe. Nearly 600,000 migrants have reached the EU by sea so far this year, many of them travelling from Turkey. BBC</p> <p>Fears grow over increased antibiotic resistance.  More than 6,000 deaths a year could be caused by a 30% fall in the effectiveness of antibiotics in the US, a report in The Lancet suggests. It said most of the extra deaths would happen in patients having colorectal surgery, blood cancer chemotherapy and hip replacements. BBC</p> <p>Yuan heads to weekly low. With the PBOC fixing the yuan’s midpoint down 0.05% to 6.3436, both onshore (CNY) and offshore (CNH) yuan are heading to their weekly lows. CNY touched 6.3555 against the greenback today, just as the CNH dipped to 6.3583. SCMP (paywall)</p> <p>China Defence wants good ties with SE Asia, apparently. China's defence minister struck a conciliatory tone with Southeast Asia defence chiefs on Friday, saying that all needed to work hard to maintain peace and stability against threats. China is still pushing its claims in the disputed South China Sea. Channel News Asia</p> <p>Malaysia arrests Islamic State hacker. Authorities have arrested a Malaysia-based hacker who they accuse of stealing personal information of U.S. military members and giving it to ISIS. CNN</p> <p>China warns U.S. against South China Sea challenge. China’s military establishment has reacted angrily to a planned US naval mission to skirt artificial islands Beijing has constructed in the South China Sea, as the US gears up to challenge Chinese claims in the area. </p>
Daily Scan: US stocks jump; Trump threatens to boycott debate
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>October 15</p> <p>Good evening. Data aren't on the Fed's side.  U.S. stocks moved higher Thursday as a potential rate rise looks further out. The Dow was up 1.3%, the S&amp;P 500 gained 1.5%, and the Nasdaq rose 1.8%. Consumer prices for September fell 0.2%, as expected, down from -0.1% in August. European and Asian stocks rallied Thursday as well, with the Stoxx Europe 600 growing 1.5%. Crude oil dipped 0.6%, finishing just over $46/barrel. Bottomline: A rate hike in the U.S. this month as about as likely as a snowstorm.</p> <p>Here’s what else you need to know:</p> <p>The Donald threatens to boycott GOP debate. Presidential candidate Trump wants things his way or the highway, and right now the Oct. 28 GOP debate is not going his way. Trump's campaign manager told the RNC Thursday that Trump likely won't show if the CNBC debate doesn't include opening or closing statements, or if it is longer than two hours total. The other GOP candidates also expressed distaste at the lack of opening and closing remarks. A Rand Paul aide reportedly told the RNC officials that "CNBC can go f--- themselves" if the candidates weren't given the option for statements. Politico</p> <p>Goldman Sachs 3Q dips on weak bond trading; Citi beats expectations on lower costs. The investment bank posted EPS of $2.90/share on revenue of $6.86 billion. Analysts had expected earnings of $2.91 on revenue of $7.13 billion. Meanwhile, Citi put its legal costs behind it, and net income rose to $1.35/share vs predictions of $1.28. CNBC</p> <p>Blackstone posts first quarterly loss since 2011. The New York-based private equity firm fell 40 cents a share last quarter, down from 41 cents a share during the same time last year. The firm's net income dropped 35 cents a share, compared with a 66 cents a share gain last year.  Wall Street Journal (paywall)</p> <p>Jeb Bush raises $13.4 million. The former Florida governor's presidential campaign added $13.4 million in the third quarter, surpassing Marco Rubio and Ted Cruz. CNN</p> <p>Former House Speaker pleads guilty. Dennis Hastert will plead guilty to charges that he paid $3.5 million to cover up decades-old wrongdoings while Hastert was a high school teacher in Illinois. Politico</p> <p>Suspects identified in Lockerbie bombing. After nearly three decades, Scottish and U.S. investigators have identified two Libyan suspects responsible for the airplane bombing that killed 270 people in 1988. Another Libyan, Abdel Basset al-Megrahi, was the only person convicted for the bombing. He was sentenced to life in prison in 2001 and died in 2012 of cancer. Reuters</p> <p>Myanmar signs cease-fire with rebels. The Asian country agreed to a cease-fire with eight ethnic rebel groups Thursday. While the cease-fire is a huge step for the tumultuous country, seven of the initial 15 rebel groups in negotiations did not join the agreement. National elections in the country formerly known as Burma are just three weeks away. </p>
Paul Singer says developed countries are “utterly insolvent”, buy gold
Hedge Funds
<p>Billionaire Paul Singer, founder of hedge fund firm Elliott Management and one of the most disliked people in the world, hammered central bank monetary policy at a conference in Israel on Wednesday.</p> <p>Making his controversial comments at the first ever Tel Aviv Sohn Conference, Singer argued that since the financial crisis blew up in 2008, advanced nations have been propped up by a cult of central bankers. Paul Singer’s comments are courtesy of tweets from Bloomberg TV’s Elliott Gotkine, who is attending the conference.</p> <p>Singer is no stranger to controversy. A well-known and less-than popular “vulture investor”, Singer is known for figuratively going for the throat in many of his business dealings. His unrelenting pursuit of defaulted sovereign Argentina bonds through the U.S. court system, even though some note that he paid just pennies on the dollar for the bad debt, is one example of his “vulture” style of investing.</p> <p>According to the tweets from Gotkine, Singer commented that “the balance sheets of developed economies were hopelessly and utterly insolvent once long-term entitlements were added in”.</p> <p>Of note, Singer has previously argued that prices of stocks and bonds have been notably “distorted” by over-accommodative central-bank monetary policy. Singer has also gone on record as saying if central banks make the disastrous decision to “do more” (such as another round of QE) then a global recession or depression likely. Singer has echoed these themes in the past in his letters to investors.<br /> Gotkine also tweeted that Singer said “I like gold. I believe it’s underowned.”  Singer further noted “every institutional portfolio should be 5-10 percent invested in gold to protect against zero interest rates that are degrading the value of paper currency.”<br /> Singer also argued that gold was the one tradable asset that has been “treated unfairly”, and pointed out that his fund holds gold through options.</p> <p>“Gold is the only real money,” Singer claimed. “Gold would do well if people felt they needed some real asset to protect against inflation, government policy and/or diversification from stocks and bonds.”</p> <p>Singer also commented:</p> <p>“In a world where the value of paper money is affirmatively aimed at being degraded by central bank policy, it’s kind of surprising to me that gold can’t catch a bid.”</p> <p>This article was originally published by ValueWalk.</p> <p>Photo: Bullion Vault </p>
Energy excellence: it could be the refiners ETF
Asset Management
<p>Although oil prices have retreated a bit in recent sessions, the United States Oil Fund(NYSE: USO) is still up 3.3 percent over the past month. That move has been enough to boost the fortunes of an array of equity-based energy ETFs.</p> <p>Included on that list is the Market Vectors Oil Refiners ETF (NYSE: CRAK). CRAK, the first dedicated refiners ETF, is higher by 4.3 percent over the past month. That is impressive when considering refiners benefit when oil prices slide due to lower crack spreads, perhaps the inspiration for CRAK's ticker, and the few ETFs with robust refiners exposure have been noticeably less bad this year than traditional equity-based energy sector counterparts.</p> <p>The gains posted by some refining stocks, including several of the 26 held by CRAK, are enough to make investors ponder if the ETF and its holdings can remain firm going forward.</p> <p>Read more on Benzinga. <br /> Photo: Natalie Maynor</p>
Fund managers are snapping up Japanese small-caps
Hedge Funds
Faced with uncertainty over Japan Inc.’s future earnings, hedge funds and asset managers are trying on something a little different from their bread and butter. According to the Nikkei Asian Review, a slew of profit downgrades coupled with a shaky global economy have led investors to flee from Japanese large-caps in favor of the more domestically-oriented small-caps: “Institutional investors are
When Warren Buffett knew he was rich
Lifestyle, 4:01
<p>I’m not exactly a big fan of Warren Buffett, but this answer he had for a student back in 2005 is beyond fantastic, and I thought you guys would like it too – especially those still in the early stages of their careers.</p> <p>Without further ado, here’s Warren Buffett on when he knew he was rich (h/t Josh Brown):<br /> Q: When did you know you were rich?</p> <p>“I really knew I was rich when I had $10,000. I knew a long time ago that I was going to be doing something I loved doing with people that I loved doing it with. In 1958, I had my dad take me out of the will, as I knew I would be rich anyway. I let my two sisters have all the estate.</p> <p>I bet we all in this room live about the same. We eat about the same and sleep about the same. We pretty much drive a car for 10 years. All this stuff doesn't make it any different. I will watch the Super Bowl on a big screen television just like you. We are living the same life. I have two luxuries: I get to do what I want to do every day and I get to travel a lot faster than you.</p> <p>You should do the job you love whether or not you are getting paid for it. Do the job you love. Know that the money you will follow. I travel distances better than you do. The plane is nicer. But that is about the only thing that I do a whole lot different.</p> <p>I didn't know my salary when I went to work for Graham until I got his first paycheck. Do what you love and don't even think about the money. I will take a trip on Paul Allen's Octopus ($400M yacht), but wouldn't want one for myself. A 60 man crew is needed. They could be stealing, sleeping with each other, etc. Professional sports teams are a hassle, especially when you have as much money as him. Fans would complain that you aren't spending enough when the team loses.</p> <p>If there is a place that is warm in the winter and cool in the summer, and you do what you love doing, you will do fine. You're rich if you are working around people you like. You will make money if you are energetic and intelligent. This society lets smart people with drive earn a very good living. You will be no exception.”<br /> Photo: Fortune Live Media</p>
Underserved and uncompetitive: Why VCs are dropping anchor in Vietnam
Venture Capital
Vietnam’s young demographics and increasingly tech-savvy population are making the country a draw for tech investors but the market is still largely underserved, say local venture capitalists (VCs). 500 Startups’ recent decision to add two new venture partners - Binh Tran and Eddie Thai - in Vietnam is the  latest indication that more VCs are interested in the country, The
Blockstream to launch Sidechain
<p>As bitcoin has gained popularity over the past few years, the system that the cryptocurrency runs on began to face some growing pains.</p> <p>Developers started to worry that the existing framework wouldn't be able to support continued growth; new ideas about how blockchain, the ledger-like technology that bitcoin runs on, could be used in other industries began to emerge.</p> <p>Those issues threatened to tear bitcoin apart, as the cryptocurrency community debated whether changes to the way bitcoin operates would take away from its decentralized nature. However, a startup called Blockstream says it has created a solution that will allow bitcoin to grow while keeping its original framework intact.</p> <p>Read more at Benzinga.<br /> Photo: BTC Keychain</p>
Japanese mutual fund assets fall to 2015 low
Asset Management
<p>Just as the Nikkei was shrinking 8%, apparently, Japanese mutual fund assets did some shrinking of their own.</p> <p>Citing data from the Investment Trusts Association, the Nikkei Asian Review reports that mutual funds in the land of the rising sun saw their assets under management shrink by a whopping ¥3.57 trillion ($30 billion) in September. That’s the same amount needed to rebuild Fukushima.</p> <p>The drop left the industry with just ¥93 trillion ($782 billion) in assets last month – its lowest level for the year – though still above last November’s ¥92.6 trillion ($779 billion) reading, not to mention the dramatic, post-Lehman decline.</p> <p>A lot of variables contributed to this, the surging yen for example ate away at foreign currency-denominated investments, while operating losses – now on its fourth consecutive month – continued to erode value.</p> <p>Still, inflows continue to be positive, and if investor commentary is anything to go on, investors are still in love the region, deteriorating fundamentals or not.<br /> Photo: Moyan Brenn</p>