Tag: GDP

The Death of Growth: Old & rich vs young & poor in 2030 & beyond (Part 1)

Post author By admin
Post date June 22, 2021

Our guest is Clint Laurent from Global Demographics, an amazing demographer, businessman and observer of global trends long before they really take hold. He shares surprising observations that he believes will happen in the next 5 to 10 years.

This is the first of a two-part discussion. Watch the second part here.

Clint started Global Demographics in 1996 and cover 117 countries throughout the world and China. They do that right down to county level of 2,248 counties. Clint believes that demographics are better than financial data from the point of view of forecasting because they tend to be stable trends.

Global Demographics is able to come up with reliable forecasts at least 15 years out. After 15 years, reliability goes down and they are typically never more plus or minus 5% error in our long-term forecast. Their clients are mainly consumer goods companies, infrastructure backbones and things like that.

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This QuickHit episode was recorded on June 17, 2021.

The views and opinions expressed in this QuickHit Clint Demographics QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

TN: Over the last year or so, we’ve seen the pandemic. We’re now having this bullwhip effect with inflation and other things. But I guess this capping off in the last 20 years where we’ve seen China as the global growth market and the marginal consumer for almost everything. And it’s really forced me to think what’s next. You and I published a piece about a year and a half ago around China’s population topping out around 2023, 2024. And so I’m really curious, what do you see happening in the next 5 to 10 years that will really come as a surprise to people? What are some of your observations over the next decade?

CL: The world is actually as bizarrely almost on a bit of a cusp at the moment. The pandemic is almost irrelevant to what was going to happen. I mean, I know the pandemic caused a lot of economic disturbance, obviously affected some people’s lives quite significantly. But really, there was a lot of change that was about to start to happen anyhow, irrespective of whether or not the pandemic came along.

From a demographic point of view, the pandemic is not really very relevant. I’m currently based in the UK and the people who have unfortunately died from it, most of them would have died in the next two years anyhow because they had severe underlying health situations. And so, its effect on death rates has actually been very, very marginal.

Secondly, most deaths being over the age of 60, that means it doesn’t affect the labor force, it doesn’t affect the propensity to have children. So really, it will be a horrible little blip in the history of mankind. And hopefully we move on from it and the vaccines keep working. And so a little bit of hope there. But that aside, it was going to be a big change.

And if I can explain the change in the following ways.

Up to now, the world has perhaps been a little bit lucky in the sense to be, first of all, had what I call the Older-Affluent countries, and that’s Western Europe, North America and what I call affluent Asia — Japan, Taiwan, Australia. All of those countries, which are actually only 14% of the world’s population, account for a very significant proportion of the global consumption. As you know, it grew quite rapidly, which was really quite good. And that is really the first big change is going to come into effect.

What’s already started to happen is people. The only growth in these countries is people over the age of 40. Every age group below that is in absolute decline. So even if they’re going up in affluence, the young affluent market is no longer a growth market. It’s more or less stable. Even if you add in increased incomes, which still occur, but at a slower rate. So you’re now looking at a 40+ age group, and in some countries, obviously, Japan is one, it’s 60+ that are the age group that’s growing.

So all of those societies, to some extent, are in a lot of trouble. They’re flattening out. They’ve moved from a pyramid population to a square, and that’s actually very good.

A lot of people say you should have a pyramid population with young people coming through and looking after the old. That’s actually the poverty trap. Because if young people come through, the dependance, first of all, will keep driving the society down. With a square, then the same number of people need education each year, the same number of people need health care each year. The capacity is there and it’s an improvement of quality rather than an increase of quantity.

TN: So you’re saying with these wealthy developed nations, Japan is an extreme example, consumption isn’t really the worry. It’s the growth that’s falling off. So the consumption is stable. It’s just not growing.

CL: Exactly. There’s one other big change to appreciate is what people say because they’re getting old, they’re going to run out of labor force. And here’s a statistic for you: In Japan, 25% of males, 70 to 74 are still in full-time employment. And you’re saying, “yeah, well, that’s Japan. It’s different everywhere else in the world.” You know, it’s exactly the same statistic in the United States.

The aged worker is a new phenomenon. In fact, the age worker is the fastest growing demographic. So these countries actually are not running out of workers. And the assumption that we all go decrepit and work after age 64 is just wrong. I am over 65, as you can probably guess. I don’t have a single friend who’s not in full-time employment at this point in time, enjoying it. It raises lots of issues.

So the labor force keeps going in these countries as well. So they don’t even need migrant workers to sustain these countries. So they are nice, comfortable niche. Growing steadily, not phenomenally. You’re talking about 1%, less than 1% growth in total consumer spending. Households are getting a little more affluent. Number of households is flattened out, which would have implications for the housing market. But it’s not going down, so it’s actually not too bad.

TN: So you say GDP is pretty stable, but what’s happening to GDP per capita in those countries? Does it continue to grow?

CL: It does, but just at a much slower rate. You’re talking 1% or even less than 1%, but it’s positive. And do remember, 1% of a hundred thousand US dollars is more money than the total income of households at the other end of the spectrum. Much of their spending power is quite significant. But a really important point to keep in your mind right now is that consumption expenditure will start to level out. It won’t hit that high growth rate anymore. It drops back to about 1% or even slightly lower.

Then the other big change you’ve got is what I call the next group of countries, which is older but not so affluent. And that obviously includes China. Now, let’s just put China to one side for the moment and look at the other countries in that group. You’re talking about Russia and the Eastern European countries. All of which have huge potential because like the previous group that I just talked about, they score really well on education.

And countries that score well on education, with the right capital investment, can lift the productivity. The countries that have weak education, it doesn’t matter how much capital you throw into them, they don’t lift their productivity. And there’s plenty of statistics to prove that. So these countries actually have a resource. I mean, Latvia, Romania. It doesn’t really matter. And that actually got the one thing that’s really hard to do. Good education.

Why is it hard to do? India has been really bad on education up to now. It finally has universal education. Every kid, 5 to 12 is now supposed to be in school. But it takes another 10 years before some of those kids come out of school and get into work. And it takes another 10 years before the workforce has become sufficiently skilled that the capital investment comes and lifts the productivity.

So these Eastern European countries and Russia are actually interesting from the QuickHit point of view. They start getting the fixed capital investment right, got the education right. They could actually be the next growth area. Only warning to you is they also are relatively old. So it’s a growth area of 40 pluses and 60 pluses. That is going to happen because they’re under earning at the moment. They can lift their incomes, obviously, buy bit of car, bit of clothing, all of those sort of things. But it’s a growth area of an older population, not a young population.

TN: And it’s something that nobody’s watching, Clint. Like, I don’t think anybody is really looking for that even as a possibility. A lot of people have written Russia off, see it as a petro state or whatever, and central and Eastern Europe is kind of just kind of a no man’s land in many cases. So some manufacturing there. There’s some services there in terms of globalization. But I don’t think there’s a lot of expectation to see rapid growth there and high productivity there. So I think that’s a really interesting question mark that most people aren’t even thinking about.

CL: That’s right. And if you go into these countries physically, you start to see some of the big brands starting to look at them. And you come across someone from XYZ Corporation there. We just have a little look. So some people are starting to see that it’s there. It’s just as you say, it’s not visible yet.

Let’s switch to China briefly. China slightly different and also very similar. First of all, remember 1989, China introduced the one child policy. That came under a huge amount of criticism. But ignoring how you feel about that, is one very simple thing it achieved. It levelled off the number of young kids needed to be educated. And subsequently started, it was 1979, they introduced. Such that by 1984, when they introduced compulsory education for all six to 12 year olds, they were talking of a relatively stable number of kids. So they could focus on the quality of education. And so every kid’s been going to school in such when you go to the year 2000, you’ve got this population still living in the rural areas. But who could read, write and do sums and all of those sort of things. Could get on their bike, go into town and get a job in a factory or an office or whatever.

And the differential between an urban worker and rural worker in China is 3.6. And that’s actually how China drove its growth and its productivity per worker and its influence. What it did is, it said, take all these people who are nice people, but not well-educated, not earning very much money, educate them, put them into job, let them earn lots of money, and have a good lifestyle. And that drove up the productivity and the whole success story of China.

TN: So urbanization and wage arbitrage, productivity gain for China. But is that running out in the next ten years or does that continue over that period?

CL: We’ve got it going through actually. It’s 20 million a year at the moment, which is a phenomenal number. That’s Australia, every year. It’s 20 million at the moment. We have it dropping down to about 11 million by 2040 because it’s still a lot of people moving there.

Now, this is the other big trick. Because some people have been saying, China’s population’s leveling out. And, you know, we thought it was 2023, where even the Chinese government agrees with us. Now, it’s 2023, and it’s leveling out. The working age population is starting to shrink. Oh, dear. That can have a decline in the workforce. No. They’re having a decline in the rural workforce. The rural workforce have in the next 20 years.

The urban workforce keeps growing for the next 10 years to 2030. The number of people working in urban jobs, which are highly productive, keeps going up. So for the next 10 years, China’s GDP growth still chugs along reasonably well. After 2030, the growth rate drops away and we have it down to about 1.3% by 2045, because it just isn’t the extra workers to keep growing the total GDP. So that’s the story there.

But again, coming back to the consumption side, China in the last 10 years in the urban area had this huge group of people, 220 million of them urban, aged 40 to 64 years of age, educated, earning quite good money by turning a stand and spending money on holidays and trips and things like that. And between 2010 and 2020, that went up to 100 million people. Think about it, a 100 million extra people with disposable income. It was no surprise that the retail side of China took off and tourism and all of that. It was those people. They’ve got a house. They’ve got a fridge, they’ve got a refrigerator. Let’s have some fun. That’s really what’s happening right now.

Now, the bad news is that now it flattens out. Every age group under 40 in China is already declining and will continue to decline in size. So don’t go after the kid market in China except on the wealthy and those sort of areas for education. The 40 to 64 age, what I call the working age optimist, it grows for a little bit, and then it flattens out. And it’s named the 65 plus, which in China is not like the other countries. The 65 plus at the moment doesn’t have great health, doesn’t have a great life expectancy. You get some extension of the workforce, but not a lot.

So China’s consumption is healthy as well. It’ll chugging along quite nicely. And to digress slightly, but I think we need to recover quickly here. The one child policy, it’s moved to three now. That’s totally and absolutely irrelevant.

TN: Yeah, it doesn’t seem like it’s going to do much. They’re too rich to want to have more kids, right?

CL: Exactly. And actually, it’s the birth rate that’s not the important point. It’s the number of women of childbearing age. And that goes down by a third. It drops 330 million now to about 220 million in 20 years time. And the birth rate can’t give up fast enough to compensate there. So births in 2019 are 14 million. It dropped to 10 million last year because of the pandemic, waiting to come back up a bit about to 14. It’ll be down to 11 million by 2030. And they can’t change that even with the three child policy. That won’t change.

TN: It’s not the three child policy, it’s the fact that there are not enough women to have babies. And those women are wealthy enough that they don’t want to have three kids.

CL: That’s really basically it. Just look at Singapore. They tried everything to get the birth rate up.

TN: I was there. They were paying people to have babies and it still didn’t work.

CL: Even send them on cruises. I mean, I volunteered.

And then you have, so that’s the second group. And the key point by the first group is nice and stable now, chugging along nicely, but no longer super growth in consumption. Nice growth in consumption is how I call it.

The third group, what we call the family stage. And that’s obviously dominated by India, Brazil, Indonesia all there. The bulk of populations is in that 25 through to 39, having children, at work, that sort of stage. So the working age population is still growing a bit, but not a lot. Education’s improving. It varies quite a lot across this group. India is at the weaker end. Indonesia is probably one of the better ends.

So, you’ve got a bit of a dichotomy there. But they’re generally in a position to be able to attract capital and generally in a position to be lifting their total consumption, but not dramatically. We’re still talking of relatively low incomes under 10 thousand USD for the average family per annum. So the growth is there.

TN: So Indonesia, India, Brazil and so on, the capital formation, capital investment is the real weakness there. And it seems to me that’s a function of, largely, education. Is that fair to say?

CL: That’s exactly what it is. As they get the education right and they’re working on it, most of these countries have been quite responsible in that area. And as they get that right, so the investment comes in, so the consumer gets more affluent and becomes a virtuous circle.

TN: And what time scale are we talking about for that consumption to come in a really notable way to take the place of the under 40 Chinese consumption or the under 40 Western Europe or American consumption?

CL: Well, that’s the bad news.

Podcasts

Investors Pause to Ponder as Markets Near Records and Prices Rise

Post author By admin
Post date May 31, 2021

This week in markets it’s all about the rising spectre of inflation in the US, and how it informs and shapes the markets, especially in the context of jobless claims and GDP data due out later today.

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/investors-pause-to-ponder-as-markets-near-records-and-prices-rise on May 27, 2021.

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Show Notes

KHC: So to discuss markets, we’ve got on the line with us Tony Nash, the chief executive of Complete Intelligence. And Tony, let’s start with the recent stimulus measures and, of course, the rising specter of inflation. In your opinion, what is your sense of whether the inflationary numbers are transitory or rather more permanent in nature?

TN: I think it really depends on the products you’re looking at. So if we look at products like lumber or corn or some of the eggs, the non protein, meaning hogs and cattle, if you look at the plant type of eggs, that inflation seems to be coming off. It seems to be at least off of the peaks for now if we’re looking at the protein stocks. So pork and chicken and beef, the storage of protein products is pretty low.

In some cases, it’s 20 some percent below the product that we had a year ago. So I would expect an ongoing rising prices for things like meat over the next three to six months. But oil, I think we’re range trading in oil. I don’t necessarily see a spiking up in oil. We haven’t seen inflation in oil like we’ve seen in other commodities.

PS: Still in U.S. With respect to the stimulus, I think that’s resulted with individuals having a much higher level of personal savings. How do you think that is going to be utilized in the coming months?

TN: Sure, yeah. The personal savings in Q1 of this year was around 21% of Americans income. So there’s almost a lot of fiscal stimulus in the US. Normally, if we look 20 years ago in 2001 and the same quarter, the savings rate was 5%. So it’s more than four times normal. So how do we think it’s going to be spent? Probably on services, probably on things that people haven’t been able to do while they’ve been locked down for things like travel, restaurants.

I would expect to see a lot more spending at restaurants later in Q2, Q3 and Q4 of this year travel. Well, we definitely expect that to come back. But the hotel spending we think may be more regional rather than national or international.

WSN: So, Tony, does this mean that we should start looking at these kind of stocks? And so you’re talking about hospitality, aviation, even restaurants. Should we be buying these companies?

TN: No, I think it depends on the stock. It really is the type of market where you have to look at the individual stocks because valuations and really almost any other gauge for measuring the value of a company is pretty stretched right now. So you’d really have to identify the type of investing on it to make and really look at where you think that’s going over time. So will these valuations hold? Will the different metrics that people are looking at going to hold? A lot of these things are already baked into to the price of equities. So I’m not sure how much more we can juice out of these equities right now.

WSN: And this is not just the the sectors that we talked about. You’re talking about generally the broader market overall be over everything. So then how should we determine our asset allocation? I mean, should we move back into cash or should we look at other markets, for example, not just US?

TN: Well, yes, I think you really have to look at it on an opportunity by opportunity basis. I think we’re at that point in the market, in the cycle where you really have to evaluate every single opportunity individually. I think a lot rests on the upcoming Fed meeting on June 15. So we’ll know on June 15th as the Fed signaling that they’re going to tighten a little bit is going to be a little bit of taper. Are they going to continue running down the street with their hair on fire, just throwing cash out to everybody? If it’s the latter, then sure, we have some ability to stretch these values even more. If not, I think there’s going to be a lot of care taken and we’ll see a little bit of rotation into some things like gold and other things.

KHC: So more immediately, Tony, this week we’ve got jobless claims data and of course, GDP. How, if at all, with those data points, shape your investing decisions going into the weekend.

TN: Well, I think unemployment is a big one because last month’s number was so terrible, so if we have another terrible unemployment rate, it’s easy. If last month was terrible and it was a one off, then fine. But if it’s another terrible number, then I think that’s a really bad sign. But the Fed and the Treasury are wrestling with the fact that there’s really too much stimulus out there. So people are paid an extra twelve hundred US dollars a month to stay at home instead of go out and get a job.

So a lot of small business owners, restaurants and shops and these types of hourly workers, those employers can’t afford to hire people or the people making who would normally take those jobs are literally choosing to stay home and collect unemployment instead of get a job, because, again, they’re making more than a thousand dollars a month, literally by refusing to take a job. So that’s a disincentive for people to join the workforce, but to stay actively unemployed.

Supposedly, they’re looking for a job, but to not really take a job because they can make so much more money. Now, you have something like twenty seven states in the US that have now said they no longer want the federal unemployment kind of accelerator, which is that three hundred dollars a week extra on top of the normal unemployment people would get because the states are seeing that their companies are having a really hard time finding work.

And so if they no longer take federal money, then those small companies and those change will have an easier time finding workers.

PS: And Tony, can we give you a perspective on the current crypto volatility in your view, whether it will cause the contagion effect on price levels of traditional assets like equities or bonds?

TN: That’s a good question, you know, crypto came off big time, right, last week and over the last couple of weeks, and then it is interesting that there really hasn’t been a contagion to speak of. And a couple of notable things. When we’ve seen equities fall that much or commodities or something, there’s always a contagion. Right. And what always happens is central banks come in to intervene and help the markets. And what I’m wondering is that expectation that central banks are going to intervene, does that accelerate the contagion effect so the central banks would bear save the market, the potentially contagious markets with those markets because of falling and it hasn’t gone over to other markets?

Nobody expected central banks to intervene in crypto. So it’s a really interesting study on how markets function and also what people’s allocations were. I mean, a lot of people have money in crypto. They may not have a lot of money in crypto, but it’s a widely distributed asset that people have. It’s also seen as kind of a lottery ticket and gamble.

WSN: So Tony, do you have money in crypto?

TN: I don’t know if you guys follow me on Twitter, but I talk about my 19, 20 year old daughter who put, fifty dollars in crypto, and I think she was up six times at one point. I think now she’s up. Well, she’s probably still up six times. She was up, I think 15 times at one point.

PS: But she stood up.

WSN: So, yeah, you’re still the richest in the house.

TN: You know, your student, right. I got in with a little bit just after her, so. But it’s not a big bet. I’m just really curious to see how this asset performs. One of the learning she’s had is take out your principal as soon as you can, and she’s done that. So everything she’s playing with is profit. And I think that’s the guy that a lot of crypto investors are using is, hey, take out your principal when you can. Everything else is profit. And let’s just see where it goes.

KHC: Well, thanks, Tony. She has a good teacher. That was Tony. That is the chief executive of Complete Intelligence. Just on the back of what he was talking about with the stimulus checks. I mean, I’m rereading one of Jim Rodgers’s book, which got it to that last night. And when he was traveling through China, he noticed that in China, 30 percent of income is typically going to a savings rate in America. That number in the 90s when he wrote this book was around about two percent.

So Americans don’t have a culture of saving. They have a culture of spending. And because they get the stimulus checks, I think there’s a longer term discussion about what this is going to do on the job market because the Americans getting more money than they used to get in their previous jobs by sitting on their backsides in the couch. Right.

WSN: But it’s just not correct. They are going through and. Correct.

KHC: Yes, but they don’t behave this way. Right. They don’t save it for the long of the. And rub it Robinhood or they couldn’t buy an iPhone. Right.

WSN: I think this is the Robin Hood in the iPhone. You know, I want to put this into context. Yes. I’m sure some spend their money that way. But there were also some people who really need it, of course, check. So like in any economy in the recovery, you’ve got this case shape. So, you know, but I think what does this mean for the U.S. economy in terms of inflation? Pressure is the job market as well?

PS: Yeah, I think the question was whether they should have been more targeted, the stimulus, because he was quite overreaching and basically touched, I think, about 80 percent of people. That’s the challenge in question here.

QuickHit

QuickHit: How robust is the global financial system in the wake of Covid?

Post author By admin
Post date March 1, 2021
1 Comment on QuickHit: How robust is the global financial system in the wake of Covid?

This week, we are joined by Seth Levine of the Integrating Investor, a professional investor and investment market blogger, sharing to us his thoughts on the current financial system, central banks, and debt cycles.

Seth Levine is the author and creator of the Integrating Investor Blog. Seth is also an avid coffee roaster, who influenced Tony Nash into roasting as well.

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📈 Check out the CI Futures platform to forecast currencies, commodities, and equity indices

This QuickHit episode was recorded on February 19, 2021.

The views and opinions expressed in this How robust is the global financial system in the wake of Covid? QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

TN: We have a new administration in the U.S. We have Jerome Powell, Central Banker who’s been there for a while. We have Janet Yellen coming in as a treasury secretary. But we’re also late in this Covid cycle with a lot of overhang and bad policy decisions. Some people may like them. But we’ve got a lot of things that need to restart. At the same time, we have Europe that is still shutting things down and the ECB and we have demographic issues in Europe. All those sorts of things.

I’m really curious about in the financial system, but more specifically, central banks and treasury. What are your thoughts on where we are and where we’ll likely go in the next year or so with those financial system central banks and treasuries, what does it look like from your perspective?

SL: The financial system is just a really interesting topic all together because it is a very big word, a very big concept. And it’s an abstraction that a lot of people grasp onto, and some of the work I’ve done a couple years ago, I really tried to untangle that abstraction and concretize it and what I found is that, when we say “financial system,” we’re really just talking about a system of interconnected banks.

So at its base, we’re talking about very simple banking. Banking is complicated. But when I think about banking at its core, what is it? It’s really just a carry trade. If you have bank XYZ, you take in deposits and then you try and invest those and earn an asset yield that’s an excess of your deposits. And you keep a little bit in your deposit and you keep a little bit behind for reserves, i.e. liquidity.

It’s a leverage system. When we talk about the global financial system, we’re really talking about a leveraged system of interconnected, financial services companies. And that’s what we see on the screen. They’re in the markets for bond stocks, derivatives, all sorts of things and it is giant. Because we not only we have Central Banks. We also have what’s called the shadow banking system. Or some people call it the Euro-Dollar system.

So we look at what has happened over the course of my life. I really see this carry trade being squeezed in one direction. The funding side has perpetually been squeezed lower. And what’s that done? The asset side has come down as well. But I see all these like market events, whether it be Covid or the bombing event of a couple years ago or any number of market sell-offs. That is a signal that the market is trying to deleverage.

There’s been asset mis-pricing on the market and because we’re levered, again the impact is so much greater so the response out of policy makers has always been to lower the funding costs. If the asset yield is coming down, the funding cost has to come down too to keep that carry trade together. And now as asymptotically reach zero, maybe even going the other way, it’s really interesting to see what’s going to happen with that asset yield because again if there’s a mismatch of any sort, that’s when we can start hitting some turbulence.

TN: Do you think we’re hitting that mismatch point? We have a lot of precarious events like right now, whether you’re looking at big events like the demographic handoff from baby boomers to millennials, or if you’re looking at Covid or if you’re looking at some specific corporate events or even cryptocurrencies. There are so many different things happening right now that could mess with that carry trade.

SL: If you want to talk about cryptos, that’s a separate conversation. It depends on your time frame. If you look long-term, it’s the millennial taking over from the baby boomer and just a giant debt burden that we’ve amassed and I’ll claim it squarely on the fiat currency regime because again if you look at all fiat currency regimes they tend to go in this direction where the spending gets and the debt load tends to overwhelm the productive capability of the current economy and that is an issue that I think has to resolve and how that resolves, I’m not going to say anything unique here, but I believe there’s only three ways out.

You can either inflate it away. You can either restructure the debt or the obligations and in this case would probably mean restructuring social security and medicare benefits or you can repay it or default on it, right, which I think repayment is going to be difficult. And default, I’m not sure we need that considering that it’s a fiat currency and we could print it ourselves and that actually leads into what I think is the war of MMT right now and again, if bitcoin is one bottle of tequila I think MMT is a bad case of it.

That’s the draw of that because people are trying to find a way out of this and that’s longer term. If we go back to the more near-term view, I think inflation is really an interesting development here. And when we say inflation, I mean we’re specifically talking about CPI growth.

So we get to a point where the CPI is going up and bond yields for whatever reason follow CPI growth up, then let’s go back to that carry trade. Now we’re talking about our funding costs going up and asset yields don’t go up. That’s going to be a problem for the financial system and keeping that carry trade together.

However, it’s also how to get the asset yields up. Well the price has to come down. So that I think is a pretty interesting potential risk that we may be facing in the economy unless we can really generate the growth so we can get the asset yield up to match the increase in funding costs.

TN: I believe we’re in that very precarious position right now as we look at bond yields rising we look at other things. There’s a lot happening right at this very moment and so if you are a Janet Yellen or a Jerome Powell, what are you thinking about, I mean aside from these big problems we’ve talked about, what kind of tools do you think you’re looking at aside from dump trucks of trillions of dollars? Like, is there a lot… Do they have other options, really?

SL: I’m gonna answer this in some really different ways. The stimulus route that most people would like to go to, I actually think that’s counterproductive because I think about stimulus right, as opposed to say QE for example, you’re actually giving money in the hands of citizens. These are not institutions. These are actual citizens who are going to go out and purchase things.

So that actually I think puts upward pressure on CPI growth in a way that QE just simply did not, just from a pure mechanical perspective. So if that’s the case, we start seeing… So if you go and unleash some stimulus and then you start seeing CPI growth and then you start seeing bond yields go up, I mean you’re actually exacerbating the problem, right.

So my preferred method as a pure capitalist here, if I’m Jerome Powell, if I’m Yellen, I’m thinking of ways to get the asset yield up and I mean like bona fide get the asset yield up and from my perspective that’s purely deregulation and going to as free market and economy as possible. But that to me would be the only way of really getting the asset yield up and the growth up that we need to grow our way out of out of the debt load that we’ve created.

TN: Okay, interesting. So what are some of those deregulation paths you’d go down? Like again, the broad swallows of them and and how would you sequence that to not have immediately negative impact on the on everything? What would you focus on and how and when would you focus on it?

SL: So this is gonna sound like a punk, but it’s not. I think this is a very specialized issue and there are and they’re probably like really good policy makers, policy experts who can actually opine on this. But the way how I like to think of these problems and I get a lot of criticism for this, but it’s really to me the only way, the best way that I know to think about them is think of the end state, think about where we are now.

Like, let’s devise the ideal end state and then once we agree on the ideal end state then we could talk about the strategy to get us from here to there in the least disruptive way possible. So I mean ultimately my end state would involve going to a free banking regime. We’ve tried this throughout history. There’s been periods of it in the US. There’s been, it’s been tried best probably in Scotland. There’s also some in Canada.

If you’re looking for resources on free banking, I highly recommend the work of George Seljun and Larry White, definitely the foremost experts on the topic. If I were Jerome Powell, the way how I would go. I would try and think of how to put myself out of a job in a sense, which we know is probably unrealistic and probably doesn’t have a lot of consensus behind it but, that’s the way forward I see. These prescriptions that we’re talking about are going to be financial because we are talking about Jerome Powell who’s the head of the central bank. So he is a banker in the financial system.

And Janet Yellen is treasury secretary. I don’t really know how much power she has because she’s just trying to fund the government. If I’m Janet Yellen, I’d probably have to get a little bit shorter and then, maybe try and try and lobby for some deregulation angle and take some of that pressure off me to actually to have to fund a large government with that has a very big reach.

TN: Sure. Okay and so when we look at going down that path and we look at say the US Dollar as, like it or not, as a global currency, how do other say central banks or financial systems interact with the US as we would potentially move down that path?

SL: Sure. So the dollar is very important in the global financial system. It is the base reserve currency. But right now, all currencies are floating right. So I think perception probably has a lot more to do with it than anything else. At least from a fiat perspective, it ultimately, the buck is going to stop with the strength of the US economy. And it’s going to and that’s with any currency.

In order to keep the US Dollar as reserve currency, we need the strongest currency possible. That also means honoring the obligations possible. So that puts a lot more pressure on the inflation prescription and on the default prescription. And really I think leaves you with the growth angle as a way to maintain the Dollar’s importance in the system.

TN: It sounds to me like you’re fairly concerned about inflation in the coming years. Is that fair to say?

SL: I am sort of a secular deflationist and I am for a couple reasons, and it’s probably none that you’ve ever heard before. One I’m just pro, I’m a big believer in human ingenuity and a lot of this has to do with definition, right.

If we’re talking about inflation’s definition, right, it’s… Today, people are talking about CPI growth, right. The rate. So that is just the price of consumer goods and services. Right, I mean, that should fall over time. I mean just no… that is, I mean, that is the way of human prosperity. In fact, the only way CPI growth increases are times during shortages and tough times actually, if you look at the inflation we’re seeing now, right? The CPI growth that is like coming because we are seeing shortages throughout the supply chains, right. And that’s okay.

TN: So let’s stop there and let’s talk about that in terms of shortages. Do you think we’ll continue, like are those shortages something that are here to stay, let’s say in the short to medium term? Because like you, I’m a technologist.

I started technology for a reason mostly because I’m an optimist. So over the long term I certainly believe that prices go down generally because of innovation. But these supply shocks will say almost, a generalized supply shock, that we’re seeing in the wake of Covid, do you think that will be with us for a sufficient amount of time to have an impact on short to medium term CPI and provide a disruption to that balance that you’ve talked about?

SL: That’s an interesting question. I think it’s a matter of time frames because I think longer term, right I mean, you’re in business, I’ve been a bottoms-up analyst for 17 years here. And if there’s one takeaway is there’s no better cure for high prices than high prices. And why is that? Well that’s because businessmen and women innovate, they do bottleneck processes and they find a way to improve productivity and bring those prices down.

These Covid shortages I believe are temporary because I believe that we’re gonna see business people innovate and try and meet the demand with as much supply as possible for as low as price as possible and to make simply as much profit as possible for them as well.

So I think it’s short-term. I don’t have a way to really gauge how long that’s going to be because quite honestly it’s going to be a very micro-analysis. Are you talking about meat supply or talking about the chip shortages, and you know chip shortages that we’re seeing or are we talking about, you know, what what industry?

TN: So right. But in general, you think, it’s pretty short-lived. So we may see a short shock but for the most part where that equilibrium that you talk about can remain.

SL: Let’s go back to the financial system right back. How quickly is the bond market going to react? I think that’s probably the most interesting part of this conversation.

TN: Treasuries have risen like 33% since feb 1.

SL: Treasures have more than doubled, right.

TN: Exactly. Yeah. Doubled from zero, right.

SL: So from a pretty low base, yeah, the ten years specifically. Investors are forward looking and the question is how are people going to react to the perceived rise in CPI growth? How far will this take it? What are also supply demand imbalances within the financial system?

These are very complicated systems with a lot of inputs and I think we all tend to fall for this. We try and we oversimplify these because we hang on to a narrative. Let’s just be blunt. Like, I have no idea where else we’re going to go.

TN: I think everybody does. We make this stuff up as we go along, right. So bringing this back to say Yellen and Powell and central bankers, the tools that they have, they’re facing the dilemma of stimulus versus let’s say near-term say CPI inflationary activities. Do you see an easy path for them in the near term?

SL: I don’t see them as the main players in this argument at all. The central banker’s job, if you go back to the early central banks, it is just simply to try match the assets and liabilities and keep everything together. How much power does he have to juice the asset yield of the economy, and I would say very little. The proof is in the pudding. When look at how economies have performed over the past couple years, no matter how low they’ve taken, treasury yields, you haven’t really seen, a boom in GDP at all.

It’s completely elusive. That’s just because that’s not within his power even though there’s just this belief out there that if you control the liability side cost then, all of a sudden you can control the asset costs and the only lever in there that gets tweaked with is actually the leverage and I think that’s probably the most dangerous thing.

TN: So in the short term, we’ll live belong, it sounds like, as usual. Okay. But in the longer term and I want to wrap this up fairly quickly, it sounds like we have to transfer liabilities from baby boomers onto millennials. Do you see any feasible tools for them to do that in a way, you know, that can happen in an organized, won’t be painless, but a relatively organized way. Or will it have to be some sort of disruption?

SL: I think the only organized way to do it is through growth, right. You need to come up with policies and again my biases as a capitalist for many reasons, we may need tothrow an extra case of tequila on the truck to get down that path. So that is a tool set that I think is necessary to tackle these problems.

If you don’t bring up the asset yield, then you have to deal with the funding costs and again you’re left with three issues and I think they’re all pretty ugly.

TN: Great. Seth, on that optimistic note, we’ll wrap it up. Thanks to everybody for tuning in for this QuickHit. Please subscribe below on the page and we’ll see you for the next QuickHit. Thanks very much, Seth. Thanks.

Podcasts

Microsoft Executive Backs Australian Government In Tech War

Post author By admin
Post date February 15, 2021

Tech war in Australia, Trump’s impeachment hearing, companies moving to cheaper areas, volatility in the market, and online dating — these are some of the topics in the recent guesting of Tony Nash at BBC’s Business Matters. From Texas, he joins Rahul Tandon in UK and Michelle Jamrisko in Singapore.

What will happen to Australian businesses if Google left? Will Biden be involved in China deals? How will Trump’s impeachment hearings will bring about? How will this move to rural places evolve overtime, for example Californian companies moving to Texas? How will the stocks market play out with too much volatility with increasing number of retail investors? And will online scrabble be the new way of dating?

This podcast was published on February 12, 2021 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172x197h9pkh53

BBC Business Matters Description:

The President of Microsoft, Brad Smith, says Australia’s proposals that tech giants pay for news appearing on their services, strengthen democracy by supporting a free press. We hear more from Rebecca Klar, a tech journalist from The Hill. As the second cricket test match in this series between India and England starts this weekend, the BBC’s Rahul Tandon reports that more Indian players are now coming from smaller towns than bigger cities, and how that reflects a broader economic change taking place in the country. It’s an interesting time for dating services with the pandemic throwing the world of romance into disarray; our reporter Deborah Weitzmann has been to meet some people looking for love in the time of Covid. And we’re joined throughout the programme by Michelle Jamrisko, Blomberg’s senior Asia economy reporter who is based in Singapore and economist, Tony Nash from Complete Intelligence; he’s based in Houston.

Show Notes

RT: Will there be some sort of compromise? Because Australia, and many of the businesses in Australia, particularly small and medium sized ones, would struggle if Google suddenly left?

TN: They would. How much of a compromise there would be? I’m not sure, and I think about like GDP in Europe, that wasn’t a real huge compromise. We start to see these nation states starting to act like nation states again. We’ve seen India push back on Twitter over the past. Right? And we’re starting to see countries push back on tech giants because they’re sovereign nations.

RT: What will we see countries getting together in a unified way to push back on the tech giants because there are two very powerful sides there?

TN: I hope they do, because they rule their own countries. And it’s up to a company to learn how to operate within a geography rather than the other way around.

RT: Do you think President Biden will want to get involved in this particular issue?

TN: I don’t think so. It’s interesting when you look at, like China has their way with tech companies all day long. They cultivate their own giants and they do whatever they want with Western companies. I don’t really think Biden will get involved or want to get involved, to be honest. I think it has a lot to do with whoever is closer to the campaign and whoever is closest to the Oval Office. But I think he would want to stay out of it.

RT: Do you think minds will be changed amongst those Republicans, 17 of them are going to have to vote to impeach President Trump? That looks unlikely, doesn’t it?

TN: Well, like Joe Biden, I really don’t know of anybody who’s watched it.

RT: I read something that said this had more viewers than the first impeachment trial. But from what you’re saying, it’s not exactly something that’s bringing in the ratings figures.

TN: I’m a political nerd. I talk to people all the time. I honestly don’t know of anybody who’s watching it. So what you say is possible, but it’s just not what I see. Do I think they change minds? Look, Trump is out of office like somebody pining over like losing a football game or something. This guy is out of office. They need to just let him go. That’s the way most of the people who I speak to feel. Every politician is competitive. Every politician uses rhetoric to win. And what Trump said was no different from what many, many Republicans and Democrats have said over the last four, eight, 12, 16 years. So I think this is just a clown show and it’s not going to result in anything.

RT: Michelle raised an interesting question, that is this about preventing what happened, making sure it doesn’t happen again or is a little bit about this preventing from Donald Trump running again?

TN: It’s more the latter than the former. If we look at the Supreme Court justice discussions over the last two years, especially during the cabinet hearings, there were protests in government buildings in the capital all over the place, people being violent.

RT: But this was different and they’re very different.

TN: But I don’t understand how it was different because though this was different because there was so much ruckus made about it and people wanted to make an issue of it. But if you look at the protests and the violence around the Kavanaugh hearings and you set them side by side with what happened on January 6th, there is very, very little difference aside from the Capitol Police letting people into the Capitol building, which they did.

And it’s on footage. People also let protesters into various government buildings during the Capitol hearings. So, again, this is completely about Donald Trump. Democrats are obsessed with Donald Trump and they just need to let it go. The guy’s not even in office anymore, so they just need to let it go.

RT: It’s not going to be let go for a while. And it’s going to be a conversation that we will be continuing here on business matters over the next few days as that impeachment trial continues. And Tony, China says to the U.S. confrontation will be disastrous. President Biden says he will work with China when it benefits the American people and he will have to work with China on some issues when he particularly his ideas on climate change.

TN: We will live in an integrated world. I actually think Xi Jinping would talk a a tougher game on climate change than Biden would. He certainly has at the World Economic Forum for several years. The question is what they actually do about it.

I actually worked for the Chinese government for a couple of years and the Central Economic Planning Agency. So I understand in a very detailed matter how the Chinese government actually works. And this discussion is just preliminary. It doesn’t mean anything. OK, we’ll know in six or nine or 18 months what the real policies are.

My concerns are with, we really have to look at the people on the National Security Council in the US and their relationships with China.How many paid speeches have they had in China that those are the biggest issues that we need to look at with regard to China policy today from the U.S. perspective.

RT: That trend in India where we’re seeing the growth of what’s called Taiwan tier two, often, these much smaller towns. Is that something that you’re seeing in Texas at all or is it still very much focused around Houston, Dallas, Austin, economic growth?

TN: First on India. The tier two and three cities is something I would forecast when I was with The Economist back in those days. We did work on this 10, 15 years ago. And it’s amazing to see it happen. You go outside of cities like Chandigarh and you see what used to be fields. That is all some suburban cities. It’s really incredible to see that is in Texas.

What we’ve seen since COVID is more people are moving to semi-rural areas or buying bigger plots of land further out. And it’s some people from Texas, but it’s a lot of people from outside of Texas. Some of us, including myself, get a little bit defensive about Texas, if you can imagine.

RT: One interesting thing I think that we are seeing as well is maybe COVID will accelerate this. But this was always going to happen, that we will see businesses moving to cheaper areas. We see that in the States, don’t we? With some movement from California towards Texas?

TN: Yes, but you also see this in places like I was hearing about a technology company that in Taiwan, so the companies are based in Taipei, for example, and the workers wanted to move outside of the city since they couldn’t come into town, into the office. So they moved to small towns around Taiwan where their family was. The company actually indexed their pay based upon the cost of living to those country towns. Right. So and I think what you’ll start seeing as you see the diffusion of employment, companies will start looking at their costs and say, “look, these people aren’t paying for an apartment in Manhattan, they’re living in Iowa.” So we need to really understand where people are living. That company in Taiwan was using mobile phone records to understand where those individuals were so they can index their pay. I think you’ll see more and more of that. It’s not that people won’t be able to live. It’s just that they won’t make the salary from Manhattan while living in, say, rural Texas.

RT: I think we’re seeing that in many parts of the world with that sort of story you described. The taking place in and companies looking at and what’s happening with employees if they move to what you could describe as cheaper areas.

We had Carrie Lee here, there being a little bit cautious about what’s happening with many of these companies are going public. There is a lot of cash around from stimulus in the U.S. Interest rates are very low. Do you see this continuing?

TN: We’re very late in the investment cycle and we’ve moved from a company being valued on its earnings or future potential to a speculator’s market. And a lot of what we’re seeing in markets today are stocks that pop for one day by 50 percent and then they lose that 50 percent the next day. We just saw that with a big pot stock, a big marijuana stock over the past 24 hours here in the U.S. And people are trying to to squeeze out as much gain as they can in markets. So this this market is very long in the tooth. I just don’t see this lasting much longer because we are in such a speculative market right now.

RT: Do you not think that when stimulus begins to to slow down in many parts of the world, some of that frothiness in the markets may disappear?

TN: There’s a concept of stock, meaning how much money is in the market. And then there’s a concept of flow, meaning how much money is moving into the market. And because a lot of the investment climate right now is focused on flow. So how much money is coming in stimulus? How much money is coming in support from other mechanisms? Not necessarily a reallocation of the money that’s already in the market.

One of the big triggers potentially could be a possible disappointment with the the package coming out of the U.S. Congress. If it’s not what people have been promised, then there’s a possibility that those marginal investors who’ve been pumping stocks up by 50 percent per day could be squeezed out of the market. And then we see that flow start or grind to a trickle. And then the action really slows down and then we start to see a correction. No one wants to call a top. I don’t necessarily think this is it. I have no idea. But it is that stock and flow discussion that really worries me.

RT: The thought of dating is always absolutely petrified me. I was always happy my mom would have arranged my marriage and to Indian way somehow there were not many takers. Unfortunately, if you had to go back in the dating scene, would playing Scrabble online be your idea of romance?

TN: No. No, not at all, sorry, it just doesn’t cut it.

RT: No?

TN: We would find way. Look, I have two 19 year old kids. They get out, they’ve been social. Their friends are dating. I know it’s impacted some parts of the world in a very difficult way, but it hasn’t necessarily impacted my kids and their friends. I certainly wouldn’t settle for online scrabble. Who is the researcher at the university in London who snuck out for a hookup? I think we would sneak out outside a curfew to get things done if needed.

RT: OK. All right. Thank you, Tony. We’re getting a very different image of you now. Tony, stop sneaking out, please. No breaking curfew for you. That’s it for business matters.

News Articles Uncategorized

Startup makes superforecasting possible with AI

Post author By admin
Post date January 5, 2021

This article originally published at https://blogs.oracle.com/startup/startup-makes-superforecasting-possible-with-ai on December 1, 2020.

Here’s a mathematical problem: The sum of all the individual country GDPs never equals the global GDP. That means forecasting models are flawed from the start, and it’s impacting global supply chain economics in a big way. Entrepreneur Tony Nash found that unacceptable, so he built an AI platform to help businesses “understand the sum of everything” through a highly automated, globally data-intensive solution with zero human bias.

Complete Intelligence, Nash’s Houston-based startup, uses global market data and artificial intelligence to help organizations to visualize financial data, make predictions, adjust plans in the context of a global economy, all on the fly. The globally-integrated, cloud-based AI platform helps purchasing, supply chain planning, and revenue teams make smarter cost and revenue decisions. It’s a way on how to make better business decisions.

“The machines are learning, and many times that has meant deviating from traditionally held consensus beliefs and causality models,” said Nash. “Causal beliefs don’t hold up most of the time—it’s human bias that is holding them up—our AI data is reducing errors and getting closer to the truth, closer to the promise of superforecasting.”

Massive datasets across 1,400 industry sectors

More than 15 billion data points run through the Complete Intelligence platform daily, making hundreds of millions of calculations. Average business forecasting saas software models use 10-12 sector variables. Complete Intelligence, on the other hand, examines variables across 1,400 industry sectors. The robustness gives businesses insights and control they didn’t have before.

“We’ve seen a big shift in how category managers and planning managers are looking at their supply chains,” said Nash. “Companies are taking a closer look at the concentration of supply chains by every variable. Our platform helps companies easily visualize the outlook for their supply chain costs, and helps them pivot quickly.”

Superforecasting brings a modern mindset to an old industry

Australia-based OZ Minerals, a publicly-traded company, is a modern mining company focused on copper with mines in Australia and Brazil. OZ says their modern mantra is more than technology, it’s also a mindset: test, learn, innovate. They wanted to better navigate and understand the multi-faceted copper market, where the connectivity between miner, smelter, product maker, and consumer is incredibly complex and dynamic. They turned to Complete Intelligence.

“I need a firm understanding of both fiscal and monetary policies and foreign exchange rates to understand how commodity prices might react in the future because a depreciating and/or appreciating currency can impact the trade flows, and often very quickly, which might influence decisions we make,” said Luke McFadyen, Manager of Strategy and Economics at OZ Minerals.

“Our copper concentrate produced in Australia and Brazil may end up being refined locally or overseas. And then it is turned into a metal, which then may be turned into a wire or rod, and then used in an electric vehicle sold in New York, an air conditioner sold in Johannesburg, or used in the motor of a wind turbine in Denmark,” he explains. “The copper market is an incredibly complex system.”

With Complete Intelligence, McFadyen has a new opportunity to test for a bigger-picture understanding and responsiveness. Previously, he updated his models every few months. Now he could do it every 47 minutes if he needed to.

McFadyen points to the impact of COVID-19 as a “Black Swan” event that no business forecasting saas software could have predicted, but is nonetheless impacting currencies, foreign exchanges, and cost curves throughout global copper market and supply chains.

“If your model isn’t dynamic and responsive in events like we are experiencing today, then it is not insightful. If it’s not insightful, it’s not influencing and informing decisions,” he said. “Complete Intelligence provides a different insight compared to how the traditional price and foreign exchange models work.”

McFadyen says early results have reflected reductions in error rates and improved responsiveness.

Cloud power and partnership

Complete Intelligence needed a strong technology partner but also one with global expertise in enterprise sales and marketing that could help boost their business. They found it with Oracle for Startups.

“We have lots of concurrent and parallel processes with very large data volumes,” said Nash. “We are checking historical data against thousands of variables, anomaly detections, massive calculations processing, and storage. And it’s all optimized with Oracle Cloud.”

Nash, who migrated off Google Cloud, says Oracle Cloud gives him the confidence that his solution can handle these workloads and data sets without downtime or performance lapses. The partnership also gives him a credible technology that is native to many clients.

“As we have potential clients that come to us that are using Oracle, having our software on Oracle Cloud infrastructure will make it easier for us to deploy and scale. A seamless client experience is a critical success factor for us.”

Nash says the Oracle startup program‘s free cloud credits and 70% discount has allowed them to save costs while increasing value to customers. He also takes advantage of the program’s resources including introductions to customers and marketing and PR support.

“We’ve been impressed by the resources and dedication of Oracle for Startups team,” he said. “I’d recommend it, especially for AI and data startups ready for global scale.”

Beyond mining: superforecasting futures with AI

Beyond mining, Complete Intelligence is working with customers in oil and gas, chemicals, electronics, food and beverages, and industrial manufacturing. From packaging to polymers and sugar to sensors, these customers use Complete Intelligence for cost and revenue planning, purchasing and supply chain proactive planning, risk management, and auditing teams, as well as general market and economic forecasts.

The error rates for Complete Intelligence forecasts in energy and industrial metals performed 9.4% better than consensus forecasts over the same period, and Complete Intelligence continues to add methods to better account for market shocks and volatility.

OZ Minerals’ McFadyen said, “This is the next step in how economists can work in the future with change leading towards better forecasts, which will inform better decisions.”

Nash and Complete Intelligence are betting on it – and building for the future.

Podcasts

In America, the economy sinks but markets surge. What gives?

Post author By admin
Post date April 30, 2020

BFM 89.9: The Business Station speaks with CEO and founder of Complete Intelligence, Tony Nash, to explain why the markets have surged and earnings seem resilient despite the US GDP falling to negative 4.8 percent.

Produced by: Michael Gong

Presented by: Noelle Lim, Khoo Hsu Chuang

Listen to the podcast, originally published in BFM 89.9.

Podcast Notes

BFM: We are talking to Tony Nash, the chief executive of Complete Intelligence on the American markets. Tony, thank you for talking to us. American GDP shrank by 4.8% overnight, the steepest fall since the last recession. What did you think of these numbers in terms of what you expected prior?

TN: It was a bit worse than many people thought. But it wasn’t as bad as it could have been. That was the thought that many people had, and markets tend to be looking forward. So looking at Q2, we now have big states like Texas and Florida and others that have started to open up fairly aggressively. So markets themselves are looking forward. And markets are looking pretty favorably on some of the opening up lines.

BFM: Fed Chair Jerome Powell is calling for more action from the government. What are the options and what do you hope to see?

TN: Well, there are options for more fiscal stimulus. The federal government could do things like an infrastructure plan. Two years ago, in his State of the Union address, the President talked about a $1.5 trillion infrastructure plan for the U.S. They could do something like that. The individual states, which really imposed a lot of these restrictions, they really haven’t had to pay up much aside from kind of the standard unemployment benefits.

So the states could pony up a bit more cash than they have. They’ve really been relying on the federal government to pay for this whole thing. And they haven’t really had any accountability for the decisions that they’ve made. So I think the states really need to pay up a bit in terms of fiscal stimulus.

BFM: The Fed has backstopped the corporate bond market in the fixed income market for some time. Obviously, you can see that exemplified in the six and a bit trillion dollars of debt on the balance sheet. Do you think they’ll come a time when the Fed backstops the equity market as well?

TN: I don’t know. There’s been talk about that, they’ve certainly done that in Japan and the BOJ owns a lot of the ETFs in Japan. I don’t necessarily see that happening in the U.S. because it’s a door that once you open, it’s very, very difficult to close.

It’s the same question with negative interest rates. And so these are activities that once you start, they tend to be very, very hard to stop. And most of the market observers don’t really want that to happen.

BFM: Q1 GDP came in minus 4.8 percent. But the consensus estimate of economist on Bloomberg reckoned there’s going to be a minus 26 percent drop in Q2. And even more astonishingly, I think a nine percent improvement in Q3. Do those two numbers strike you as a little bit extreme?

TN: Q2 seems a little underestimated, meaning I don’t necessarily think it’s going to be that bad. Q3? It’s possible it could be nine percent. I think given how negative it could be in Q2, you could definitely see a rebound like that. But that’s just a base effect in terms of the quarter on quarter growth. It’s not necessarily a dramatic year on year growth. In fact, year on year, that’s actually negative and a negative print. One would hope that if Q1 and Q2 are so bad that you would see a print that’s at least nine percent in Q3.

BFM: Yet markets charge ahead despite relatively bad macro data. What is this optimism based on?

TN: Seeing the states open, seeing some realistic plans being put together to do this, there’s a balance of doing it aggressively and carefully. I know that sounds a little silly, but we’re seeing some real push by Americans to want to open. So the state governments are going to probably do things a little more aggressively than they initially wanted.

There was some concern that Q1 earnings would be worse than they are. Meaning that companies may try to pack all their negative news into Q1 in hopes that Q2 will look slightly better. But sure, they’ve packed some of the negative news in Q1. But some of the Q1 earnings haven’t been as bad as people had feared. So markets are looking forward. And in the U.S., it’s a flight to safety.

We’re also seeing on a relative basis, U.S. markets perform fairly well as, say, non-dollar assets or overseas dollar assets come into the US.

BFM: Microsoft, Facebook, and Tesla all came out last night all the better than expected. Microsoft showing some picture of health in the corporate sector. Tesla, obviously, where car sales are concerned, then Facebook where the ad consumer market is concerned. Can we read this optimism into Q2 and possibly even into Q3?

TN: I think certainly Facebook and Microsoft, with people sitting at home, those two will probably do quite well in Q2. Tesla? I wouldn’t expect Tesla to do well in Q2. Auto sales have been way down in Q2. And with oil and gas prices as low as they are, the substitutionality effect of electronics from internal combustion engine cars, the incentive is not as high as it once was. So I don’t necessarily see Tesla’s performance to be better than expected. But then again, Tesla bulls are Tesla bulls. They’ll buy, and they’ll pump up the price regardless of how they perform in real life.

BFM: So you don’t expect this to be a broader momentum for the broader market?

TN: Anything focused on productivity, anything focused on virtual activity, will do very, very well. But things like car sales, again, they’ve been really difficult. Anything around entertainment or group, physical, in-person, entertainment, obviously, it’s just not possible or hasn’t been possible for those to grow. So those are going to be really, really hard for people to get optimistic about.

On the other hand, you’ve seen, energy firms actually performing really well today. The major oil and gas firms and U.S. markets performed really well. Part of that is on the back of gossip that the U.S. Treasury may come to the rescue with some preferential financing for American oil and gas firms. Whether or not that’s going to happen, we don’t really know yet. But that may come to pass, which may help some of these firms.

BFM: Talking about the oil industry, are there any structural changes they can make to improve their prospects of survival? Some of these oil majors that you spoke of?

TN: Oil and gas firms are incredibly inefficient. There are a lot of productivity changes the oil and gas firms could make, whether they’re NOCs, the national oil companies, or the private sector majors. Oil and gas workers tend to make a lot more than other sectors.

They tend to be more bloated, so there are a lot of productivity measures that can be taken. For NOCs, for the national oil companies, there can be more activities taken to make them more accountable than markets. And so I think in Malaysia, you’re lucky. Petronas performs pretty well.

But other NOCs don’t perform as well and you can see some major changes in terms of fiscal accountability. Assuming oil prices stay lower, accountability to the central governments and performance rather than the subsidies coming from central governments, as we’ve seen in the past, may come to pass in some countries if they can’t really afford to continue to subsidize these governments. Because, you know, we’re seeing the emerging market and middle-income country currencies come under a lot of pressure versus the U.S. dollar. If you’re seeing energy revenues decline and you’re seeing pressure on the currency, it’s really hard for some of these governments to subsidize their national oil companies.

Podcasts

Worse GDPs, Market Expectations, Chinese Manufacturing, and the Rising US Dollar

Post author By admin
Post date April 3, 2020

BFM speaks to Tony about corporate earnings as worse GDPs, market expectations, and the Dow and S&P 500 extended losses after their worst quarter since 2008 as Trump warned of a “painful two weeks ahead”. They also get into Tony’s expectations for markets in April, the shortage of US Dollars globally and Chinese Manufacturing data.

Produced by: Michael Gong

Presented by: Roshan Kanesan, Noelle Lim, Khoo Hsu Chuang

Listen to the podcast at BFM: The Business Station

Podcast Notes

BFM: But right now. Let’s take a look at global markets, a deeper look at global markets and to do that, we speak to Tony Nash, CEO of complete intelligence. Tony, thank you for joining us on the line this morning. Now the Dow and the S&P 500 extended loss after their worse quarter since 2008, as Trump warned of a painful two weeks. I think, for the Dow, this was the worst quarter since 1987, if I’m not incorrect there. Now, how badly is this going to hit US corporate earnings across the board?

TN: It does really depend on the energy sector, but generally it’s hitting things pretty bad. I guess the good news is it’s only part of Q1. So the last few weeks of Q1, but I guess the big question mark and the reason markets are really saying negative is nobody is sure how long we need to endure?

It is another couple of weeks, is it another few months? And that’s why we’re seeing markets in the red because nobody really knows. And so I live in Houston, in Texas. So it’s the energy capital of the world. Malaysia’s feeling a similar pressure with the oil and gas and a lot of my neighbors, thousands of my neighbors have been laid off from their jobs. So it’s not just the stores being shut and things that are not happening. It’s actual incomes not coming in as well.

So that consumption part of the GDP calculation will be decimated for at least a single week. And this is why you’ve seen the big government intervention come in with the 2-terms plan, which allows government spending. That ‘G’ part of the GDP calculation, it allows that to replace some of the consumer spendings and that’s one component that’s been displaced over the last few weeks and will be displaced for the part of Q2. So, our view is it the last fiscal plan in the U.S.?

We expect at least one more, if not two, five to six trillion dollars of fiscal spending from the U.S. government. The real question is whether other governments can afford to match a similar proportion of their GDP. I’m skeptical that none of them can. So what matters right now to consumers is fiscal health, fiscal spending. For central banks do not matter as much. What matters is getting hands into the consumers.

BFM: U.S. right now has over 200 thousand COVID-19 cases and the situation does not look like it’s improving, and we might see even more lockdowns in the U.S. So do you expect markets will perform even more badly in April? And how might markets land in April?

TN: No, I think what’s affecting markets really is the uncertainty not necessarily the case count because, you know, not all tests are created equally. And what really matters in the case count is the denominator.

What we found is, yes US test is actually pretty accurate, unlike a number of other tests out there. And so the number of false positives and false negatives are a lot lower that’s my understanding of the US test. And the portion of population that’s been tested in the US is growing pretty rapidly. So although we see those cases counts growing, we see it as a fairly good example of the real picture in the US. Now, what we have seen on the ground here in the U.S. So the governor of Texas came out a few days ago and said that 99 percent of the bed space allocated for covered patients is empty. So we’re not seeing people in hospitals here. We are seeing things in other parts of the country. And of course, there are cases here. But what we’re doing again and again and again is that people will come in with other ailments that will be diagnosed as COVID. So COVID is a secondary or tertiary infection to something that is really, really ailing them.

So and that’s the question that people need to start peeling back is, “Is COVID the primary cause of that fatality or is was there already a number of other ailments in place and COVID was somewhat incidental?” Until we start asking these questions, you really won’t understand how deeply dire the problem is.

BFM: Tony, there’s a shortage of US dollars in the world today obviously as a safe haven. The Fed has introduced a new repo facility for foreign central banks to draw down on what you know about this facility and how effective has it been?

TN: Well, it’s been pretty effective. I mean, we see the trade weighted dollar down 99 with a 99 handle on it now it was up 103 or something, which makes it very difficult for people outside of the U.S. needing dollars. There’s a lot of U.S. dollars denominated debt. There’s a lot of trade conducted in U.S. dollars. So if the US dollar is expensive and if governments are having to buy medical equipment and other things in U.S. dollars, it makes it even harder for them to address some of these quality concerns. So the US government has been working very hard to help other countries by pushing the value of the U.S. dollar down. So these facilities and it’s easy for countries to put up pretty low quality assets in exchange for U.S. dollars. So that the U.S. can churn more U.S. dollars out into the global economy to grain that supply up and, of course, bring the value down. So I’m not really optimistic that they’ll be able to keep it down for long. I think the flight to kind of safe haven currencies is going to persist. So I think the dollar value is going to rise, continue to rise. But I think it’s really important for the Fed to focus on this and to take these efforts in the short term to help countries get the equipment they need and transact in dollars at a lower rate.

BFM: There’s a report forecasting a severe contraction for China this year, however, the latest PMI data beat market expectations. What is your current outlook on China’s economy?

TN: You know what’s interesting forecast, because the world’s economies can’t have a very downbeat China forecast without China’s permission. So, somebody is trying to get bad news out there, okay? So I think what we may be seeing, because we saw the PMIs came out a couple days ago that weren’t that bad. But we’ve also seen a lot of government spending to try to offset the lack of business and consumer activity. So there’s no doubt there’s going to be a bad reading in China this year. And I think the World Bank report is a way for the Chinese government to allow us to get out into the market first so they’re not seen as disappointing on their deliverable of 6 percent. So we’ve, you know, Complete Intelligence had believed that China’s been growing at 4 to 5 percent for the past couple of years. So with this, I believe it’s a 2.7 percent rate been said for continuous something, I can’t remember. But it allows China to deliver under 6 percent to deliver over whatever the World Bank forecast was so that they can start to notch down those expectations. So I think the World Bank report is probably credible. I don’t know that it’s necessarily that dire, but it might be, that I think it gives NBS and China an excuse to clock significantly under 6 layer.

BFM: Tony, how about your comments changed as the context of a couple of reports overnight suggesting a) that China has been doctoring the data on coronavirus the last couple of months and b) that a county in China, other reports suggesting that parts of the country is not under a new lockdown because of a further outbreak.

TN: Well, first, I don’t think it’s crazy that anybody that China’s been doctoring the data, but I don’t think China is unique. I think there are many, many countries out there that are doctoring the data. I think political leaders are afraid that corona would be seen as a political failure. And so I think many, many numbers. And China, usually have been singled out in this kind of data doctoring, which they’re guilty, but they’re not the only ones. So, you know, is there a resurgence of this? I don’t know if there’s a resurgence as much as maybe it didn’t pale off in the way the Chinese authorities said it did. So whether it’s a statistical resurgence, you know, maybe that’s the case. But these were you know, these were always there and they didn’t see the decline that was expected several weeks ago. I think that’s likelier than the fact that there’s just some crazy resurgence in COVID in China. But, you know, I don’t think anybody should be shocked. I don’t think China is angry or guilty than anybody else. They’re known for this. A lot of statistics ministries are known for its reporting and health agencies on this reporting. So it’s just the nature of reporting national level data that can be seen as politically sensitive.

BFM: Thank you so much for joining us on the line this morning. That was Tony Nash, CEO of Complete Intelligence.

Tags bfm, bfm 89.9, China Manufacturing, Chinese Manufacturing, Corporate Earnings, Dow Jones, GDP, market expectations, S&P 500, the business station, us dollar, US Dollar Shortage, USD, worse gdps

Podcasts

Trade War to End by September

Post author By admin
Post date July 17, 2019

15 July 2019

Tony provides his analysis of the recently concluded Trump-Putin summit, China’s latest GDP figures, and the ongoing trade war tensions.

Listen to the rest of the podcast at BFM 89.9 The Business Station

Tags China, Deleveraging, Donald Trump, economy, GDP, markets, Russia, Soybean, trade war, US, Vladimir Putin

News Articles

China’s jump in exports soothes growth fears, boosts markets

Post author By admin
Post date November 5, 2018

This article is originally published at https://www.reuters.com/article/us-china-economy-trade/chinas-jump-in-exports-soothes-growth-fears-boosts-markets-idUSKCN0XA07D

BEIJING (Reuters) – China’s exports in March returned to growth for the first time in nine months, adding to further signs of stabilisation in the world’s second-largest economy that cheered regional investors.

March exports rose a blistering 11.5 percent from a year earlier, the first increase since June and the largest percentage rise since February 2015.

Fears of a hard landing in China even as policymakers press on with tough reforms to rebalance the economy have rattled financial markets, with investors eagerly hunting for tentative signs the economic slump may be bottoming.

Economists, however, warned that Wednesday’s data was not evidence of stronger global demand as it was heavily skewed by base effects and seasonal distortions from the Lunar New Year.

And despite signs of green shoots for China, first quarter GDP data on Friday is expected to show the economy growing at its slowest pace since the financial crisis. Combined with tepid inflation, that is likely to keep Chinese monetary policy loose for some time yet.

Investors celebrated, nevertheless, with key Chinese stock indexes hitting three-month highs and the yuan firming, while regional stock markets and the Australian dollar AUD=, which often trades as a proxy to Chinese growth, also firmed.

“China’s foreign trade sector will likely improve from last year due to low comparables, but the improvement will not be dramatic, as the trends in external markets are not great,” said Wang Tie Shi, economist with Industrial Securities.

The upside surprise comes after other March economic indicators hinted of slight improvements in the broader economy, although other surveys have shown intensifying downward pressure on wages and employment.

Imports continued to fall but less than expected, declining by 7.6 percent in dollar denominated terms and volumes of most major commodities, notably copper and iron ore, rose strongly.

That left the country with a trade surplus of $29.86 billion for the month, data from the General Administration of Customs showed, versus a forecast of $30.85 billion.

“I think we should focus on the better-than-expected imports growth rate, which means domestic demand is also recovering, driven by infrastructure investment and also the real estate sector recovery,” said Ma Xiaoping, analyst at HSBC.

MOMENTOUS SHIFT

China’s slowdown might not be quite as severe as first feared but its “momentous” shift from investment-led growth is still having a chilling effect on trade globally, the International Monetary Fund said on Tuesday.

The IMF estimates every 1 percentage point investment-driven drop in China’s GDP, cut growth for the entire Group of 20 nations by 0.25 percentage points.

“Even countries that have few direct trade linkages with China are being affected through the Chinese slowdown’s impact on prices of commodities and manufactured goods, and on global confidence and risk sentiment,” the Fund said.

Regardless, overseas investors also appeared inspired by the trade data. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 1.7 percent and Japanese shares .N225 gained 2.8 percent.

Tony Nash, managing partner at advisory firm Complete Intelligence, which focuses on global trade flows, sees China’s exports and imports stabilising over the next six months.

“As we close out Q2 and enter Q3, we’ll see more stable trade data before starting to see sustainable, small rises in both sides,” Nash said, adding data should be much less volatile in the second half as currencies and commodities stabilise.

NOT OUT OF WOODS YET

Economists polled by Reuters had expected March exports to rise 2.5 percent, after tumbling 25.4 percent in February – the worst showing since May 2009, and expected imports to fall 10.2 percent, based on weakness in global demand.

“Data across other Asian economies suggest that the headwinds in the trade sector remain,” Zhou Hao, economist at Commerzbank in Singapore, said in a research note.

Still, markets were relieved to see a surge in China’s demand for commodities, with copper arrivals hitting a record in March and pushing up first quarter imports by 30 percent from a year earlier. Exports to key markets such as the United States and Europe also posted double digit month-on-month gains.

China’s rising exports are also due in some part to a successful move up the value chain by mid-tier manufacturers.

“China’s export sector is not losing competitiveness. In fact, China is increasing its share of other countries’ imports, even though the global volume of trade has been sadly stagnant in recent years,” HSBC wrote in a research note.

Even as Chinese factories have learned to build more expensive car components and wind turbines, they have been shedding capacity in lower-end sectors like textiles and outsourcing such production to neighboring countries.

Premier Li Keqiang said last week that China’s economic indicators showed signs of improvement in the first quarter but a sluggish world economy and volatile markets were undermining gains.

The government is aiming for economic growth of 6.5 to 7 percent this year, following 6.9 percent growth last year – the weakest pace in a quarter of a century.

Tags China’s economic, China’s exports, complete intelligence, GDP, General Administration of Customs, HSBC, Reuters

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