Complete Intelligence


If Recession Is Coming, Does Jay Powell Still Raise Rates?

US bond prices are pointing to an oncoming recession, raising the question of whether the Fed stays the course on its path to rate normalcy. Tony Nash, CEO, Complete Intelligence, discusses. 

This podcast first appeared and originally published at on March 31, 2022.

Show Notes

SM: BFM 89 Nine. Good morning. You’re listening to the Morning Run. It’s 7:05 A.M. On Thursday, the 31 March, looking rather cloudy outside our Studios this morning. If you’re heading on your way to work, make sure to drive safe. First, let’s recap how global markets closed yesterday.

KHC: US markets down was down. .2% S&P 500 down .6% Nasdaq down 1.2%. Asian markets, Nikkei down zero 8%. Hong Kong’s up 1.4%. Shanghai Composite up 2%. STI up 3%. Fbm KLCI close flat.

SM: So fairly red on the board today. And for some thoughts on where international markets are headed, we have on the line with us, Tony Nash, CEO of Complete Intelligence. Tony, good morning. Always good to have you. Now markets are speculating that the brief inversion of the two over ten year US Treasury yields this week is a sign of an oncoming recession. So do you agree with this? And if not, what might explain these brief periods of inverting or inversion?

TN: It could be a sign. Shazana, I think we have to see a more consistent and meaningful inversion to say that we’re definitely headed into a recession. So what this means is that what a yield curve inversion means is that people have to pay more for shorter duration money. So right now, if you look at, say, the five year treasury, the yield is 2.4% and the ten year is around two point 35%. So it’s cheaper to borrow longer term money, which is really weird. It could have a lot of reasons. Maybe companies need money more. They’re short on cash and they’re more willing to pay for it. So that would be a sign of a recession. So if we see a more consistent yield driven version, we see the two and the five years continue to be higher rates, then we need to be more concerned. For now, there’s a lot of speculation, but we just don’t necessarily see the certainty of it yet.

TCL: Tony, markets are wondering whether the Fed is going to push ahead with this rate policy on tightening because this volatility both in share markets and bond markets is a bit muddling for the analysts and the fund managers to make sense of. What’s your point of view?

TN: Yeah, I think at least for the last few months the Fed has been fairly consistent. But of course, we’ve had exogenous type of events, the war between Russia and Ukraine being the biggest, and that has had an impact on raw materials costs. So food in the case of Ukraine with wheat and sunflower oil and all this other stuff and energy with Russia. So it doesn’t matter what a central bank does necessarily. They can’t push down the price of oil through monetary policy. What they can do is demand destruction. And this is why we think that they’re going to lead with some fairly sizable 50 basis point rises, say in May for sure, and possibly in June. I don’t know if you saw that today. JPmorgan was out with a note saying that there will be 50 basis point rises in both May and June, which would be a pretty sharp rise in interest rates. The good news is we see a sharp rise initially, but then they’ll only do that for a short period of time to cut off demand pretty quickly and hopefully cut down on some of the demand for petrol and oil and some of these other materials.

TCL: Okay. So your sense is that the Fed and JPowell will stay the cost and increase rates, but what’s happening in Japan is quite the opposite. They’re actually showing quite discernible decoupling because they’re staying with zero interest rates. I think the ten year yield on the JGBs is about zero point 25%. What does that spell? Because the Japanese yen is now down at a six minute seven year low. Obviously, there’s a big sense of what’s going on here. What’s your point of view?

TN: J I think yesterday announced that they would have unlimited purchases of Japanese government bonds. So what they’re doing through that is it’s an open door for them to insert currency. It’s kind of a backdoor to growing their money supply, which leads to evaluation of the yen. And so Japan is in a place right now where they want to grow their export sector. They do that through yen evaluation. The competition between, say, Japan, China, Korea is there. China’s exports keep growing despite a strong Chinese Yuan Japan. There are other central banks. It’s partly that reason, meaning the ECB tightening and the Fed tightening, but it’s also competitiveness of Japan of their exports. So there are a number of reasons at play there.

KHC: So you were saying that earlier that maybe we will see 50 basis points increase in May or June. How do you think the share prices of US banks and financial institutions typically would do in this kind of environment, and would they be ultimate winners?

TN: They could be, I guess the only dilemma there would be the impact on mortgage. So if the Fed raises rates really quickly and it has an impact on mortgage demand and mortgage defaults, then that could be a real problem for banks. But short of that, I think they’re probably in a decent place to do fairly well. Of course, that’s company specific and all that sort of thing. But I think financial services in general should do fairly well on a relative basis.

TCL: Yeah. Tony, if it goes ahead as follows. Right. And Japan does not increase rates like the US is, it just extends its debt to GDP ratio. I think Japan is now 255% to GDP. I think the US is well above 100%. That’s quite disconcerting. What happens? How does it all end? Because it’s quite clear that Japan cannot raise rates because it just cannot fall into recession.

TN: Well, the problem with Japan raising rates is their population. And you all know this story, but they can’t necessarily raise productivity without automation. So they have to automate to be able to raise their productivity, to be able to raise their rate of growth. So that’s the foundational problem Japan have now with the BOJ buying with their JGB purchases, they’re actually buying the debt that the Japanese Treasury creates. Okay. So it’s this circular environment where the Japanese Treasury is creating debt to fund their government, and the BOJ is buying that debt basically out of thin air. They’re retiring. Okay. So Japan is in a really strange situation where it’s creating debt and then it’s buying it and retiring it. And this is a little bit of modern monetary theory, which is a long, long discussion. But Japan is in a very strange place right now.

SM: Tony, thanks very much for speaking to us this morning. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that are moving markets at the moment. And in the conversation there with a look at Japan and just the curious situation that it finds itself in amid all these economic and geopolitical pressures happening in the world.

TCL: Yeah, it’s really weird, right? The Japanese are so much in debt and they can’t get out of it. They’re creating these debts and they’re buying back this debt. It’s quite insane. But America does the same thing with their bond buying program until this year. Right. And that they haven’t even significantly cut that program. It’s really weird because what happens then for the US dollar? What happens to the Japanese yen down the line when your paper currency is near as meaningless? Right. It’s not banked by anything. It’s just being printed every day Willy nilly. It’s really weird.

SM: So all eyes are, of course, on the Fed, I guess, the most powerful central bank in the world, and how much it’s going to raise rates when it’s actually going to start or stop its QE in since quantitative easing, opposite of that. Somebody tell me what it means. Qt. There we go. And when they start reducing, that’s something that everyone’s watching very closely. Let’s take a look at some of the international headlines that have caught our eye. We see something coming out of Shanghai. Volkswagen said yesterday that it would partly shut down production at its factory in Shanghai because the lack of key components indicating further how a resurgence of the Omikan variant has disrupted the Chinese economy and global supply chains. The Shanghai factory operated in a joint venture with SAIC of China, and it’s one of Volkswagen’s largest facilities. It shut down for two days in mid March, but reopened now. It looks like it’s going to have to shut down again.

KHC: Yes. And the company also gave indication they didn’t give actually any indication on when normal production will resume. But China is booked Vegas largest market in the essential source of sales and profit. So the country is in the midst of the worst outbreak since 2020. And so that should prompt the government to impose lockdowns and restrictions. And even car maker like Tesla is also having a large factory in Shanghai also have to suspend production because of this strict covet policies. And so voice mechanics, they’re actually having a lot of shortages and slowdowns in other markets as well.

SM: So it’s really the twin it’s the twin issues, right? It’s the pandemic on one hand and then it’s also the geopolitical events in Ukraine that’s really affecting it’s, leading to a shortage of auto parts. So all this comes together and it’s not great for car makers in Shanghai at the moment. Turning our attention to another headline, if we look over at Russia, Russia is going to lift the short selling ban on local equities later today. And this is actually removing one of the measures that helped limit the declines in the stock market. After a long, record long shutdown, the bank of Russia also said equities trading hours will be expanded from a shortened four hour session to the regular schedule of 950 to 650 P. M. Moscow time. So I guess they’re trying to get back to normal but how we see that impact the stock market is still, I think, an open question. Yeah.

KHC: And since the stock market has since that stock actually gained 1.7% and the daily move also has been limited. Prior to the resumption of trading, the Russian government actually took measures including preventing foreigners from exiting local equities and banning short selling and to avoid the repeat of 33% slump scene in the first day of the Ukraine invasion last month.

TCL: Yeah, this whole Russia Ukraine invasion is set off a domino effect of domino effect quite catastrophic. Or repercussions manufacturing in capital markets in currencies. How does it all end?

SM: We don’t know. We don’t know the end to that story. And how long 717 in the morning. Stay tuned to BFM 89.9%.

Week Ahead

The Week Ahead – 28 Mar 2022


We’ve seen so much about oil for rubles, gas for bitcoin, etc this week. Does it represent a fundamental shift for energy markets? And is the dollar dead? The yen fell pretty hard versus the dollar this week. Why is that happening, especially if the dollar is dead?  Bonds spike pretty hard this week, especially the 5-year. What’s going on there and what does it mean?

Key themes from last week:

  1. Oil for rubles (death of the Dollar?)
  2. Rapidly depreciating JPY
  3. Hawkish Fed and the soaring 5-year

Key themes for The Week Ahead:

  1. New stimulus coming to help pay for energy. Inflationary?
  2. How hawkish can the Fed go?
  3. What’s ahead for equity markets?

This is the 12th episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week. 

Listen on Spotify:

Follow The Week Ahead experts on Twitter:


Time Stamps

0:00 Start
0:34 CI Futures
1:22 Key themes this week
1:48 Oil for rubles (death of the Dollar?)
3:15 Acceptance of cryptocurrency?
5:34 Petrodollar Petroyuan?
7:32 Rapidly depreciating JPY
10:12 Hawkish Fed and the soaring 5-year
11:58 Housing is done?
13:10 Stimulus for energy
15:53 How hawkish can the Fed go?
17:34 What’s ahead for equity markets?


TN: Hi, everyone, and welcome to The Week Ahead. My name is Tony Nash. I’m here with Albert Marko, Sam Rines, and Tracy Shuchart. Before we get started, please, if you can like and subscribe to our YouTube channel, we would really appreciate it.

Also, before we get started, I want to talk a little bit about Complete Intelligence. Complete Intelligence, automates budgeting processes and improves forecasting results for companies globally. CI Futures is our market data and forecast platform. CI Futures forecasts approximately 900 assets across commodities, currencies and equity indices, and a couple of thousand economic variables for the top 50 economies. CI Futures tracks forecast error for accountable performance. Users can see exactly how CI Futures have performed historically with one and three month forward intervals. We’re now offering a special promotion of CI Futures for $50 a month. You can find out more at

Okay, this week we had a couple of key themes. The first is oil for rubles and somewhat cynically, the death of the dollar. Next is the rapidly depreciating Japanese yen, which is somewhat related to the first. But it’s a big, big story, at least in Asia. We also have the hawkish Fed and the soaring five-year bond. So let’s just jump right into it. Tracy, we’ve seen so much about oil for rubles and Bitcoin and other things over the past week. Can you walk us through it? And is this a fundamental shift in energy markets? Is it desperation on Russia’s behalf? Is the dollar dead? Can you just walk us through those?

TS: All right, so no, the dollar is not dead. First, what people have to realize is that there’s a difference. Oil is still priced in USD. It doesn’t matter the currency that you choose to trade in because you see, in markets, local markets trade gasoline in all currencies. Different partners have traded oil in different currencies. But what it comes down to is it doesn’t matter because oil is still priced in dollars. And even if you trade it in, say, the ruble or the yuan, those are all pegged to the dollar. Right. And so you have to take dollar pricing, transfer it to that currency. And so it really doesn’t matter.

And the currency is used to price oil needs three main factors, liquidity, relative stability, and global acceptability. And right now, USD is the only one that possesses all three characteristics.

TN: Okay, so two different questions here. One is on the acceptance of cryptocurrency. Okay. I think they specifically said Bitcoin. Is that real? Is that happening? And second, if that is happening and maybe, Albert, you can comment on this a little bit, too. Is that simply a way to get the PLA in China to spend their cryptocurrency to fuel their army for cheap? Is that possibly what’s happening there?

TS: It could be. Russia came out and said, we’ll accept Bitcoin from friendly countries. Mostly, they were referring to Hungary and to China. Right. And I don’t think that is a replacement for USD no matter what because not every country except for perhaps China really accepts or El Salvador really accepts Bitcoin or would actually trade in Bitcoin. Right.

TN: In Venezuela, by the way. I think. Right. So on a sovereign basis. Okay. So Sam and Albert, do you guys have anything on there in terms of Bitcoin traded for energy? Do you have any observations there?

AM: No, this is a little bit of… This is even a serious conversation they’re having? With El Salvador going to be like the global hub for Russian oil now because they can use Bitcoin?

TN: That would be really interesting.

AM: But this is just silly talk. Every time there’s some kind of problem geopolitically and they start talking about gold for oil or wine or whatever you want to throw out, they start talking about the US dollar dying and whatnot.

I mean, like Tracy, I don’t want to reiterate what Tracy said, but her three points were correct. On top of that, we’re the only global superpower.

TN: Okay.

AM: That’s it.

SR: Yeah. My two cent is whatever on Bitcoin for a while.

TN: Right.

SR: Cool.

TN: I think that all makes sense now since we’re here because we’re already here because we all hear about the death of the petrodollar and the rise of the petroyuan and all this stuff. So can we go there a little bit? Does this mean that the petrodollar is dead? I know that what you said earlier is all oil is priced in dollars. So that would seem to be at odds with the death of the petrodollar.

AM: Well, Tony, in my perspective, the petrodollar is a relic of the 1970s. Right. Okay. Today it’s the Euro dollar. It’s not the petrodollar that makes the American economy run like God on Earth at the moment. It’s the Euro dollar. Forget about Petro dollar. Right. Because it’s not simply just oil that’s priced in it in dollars. It’s every single piece of commodity globally that’s priced in dollars.

TN: And Albert, just for viewers who may not understand what a Euro dollar is, can you quickly help them understand what a Euro dollar is?

AM: They’re just dollars deposited in overseas banks outside the United States system. That’s all it is.

TN: Okay with that. Very good.

SR: And the global economy runs on them. Full stop.

AM: It’s the blood of the global economy.

TN: So the death of the petrodollar, rise of the petroyuan and all that stuff, we can kind of brush that aside. Is that fair?

TS: Yeah. I mean, even if you look at say, you know, China started their own Yuan contract rights, oil contract and Yuan futures contract. But that still pegged to the price of the Dubai contracts. Right. That are priced in dollars.

TN: Let’s be clear, the CNY and crude are both relative to dollars. Right?

TS: Right.

TN: You have two things that are relative to dollars trying to circumvent dollars to buy that thing. The whole thing is silly.

TS: Exactly.

AM: Yeah, of course. Because Tony, the thing is, if China decides to sell all their dollars and all their trade or whatever, everything they’ve got, they risk hyperinflation. What happens to the Renminbi and then what happens in the world? Contracts trying to get priced right.

TN: Exactly. It’s a good point. Okay. This is a great discussion.

Now, Albert, while we’re on currencies, The Japanese yuan fell pretty hard versus the dollar this week. Do you mind talking through that a little bit and helping us understand what’s going on there?

AM: Yeah, I got a real simple explanation. The Federal Reserve most likely green light in Japan To devalue their yen to be able to show up the manufacturing sector in case China decides to get into a bigger global geopolitical spat with the United States. Simple as that.

TN: Great. Okay. So that’s good. This is really good. And I want people to understand that currencies are very relevant to geopolitics or the other way around. Right. Whenever you see currency movements, there’s typically a geopolitical connection there.

AM: Of course. And on top of that, if it was any other time and they started to devalue the currency like this, the Federal Reserve where the President would start calling the currency manipulators. And there’d be page headlines on the financial times.

TN: Right.

AM: And because that didn’t happen, It’s an automatic signal to me that this is what’s happening at the moment. Right.

What’s also interesting to me, Albert, is we’ve seen last week we saw Japan approach the Saudis and the Emiratis about oil contracts. We saw Japan call. There’s a meeting in Japan next week, I think, with China. So Japan is becoming this kind of foreign policy arm, whether we want to admit it or not, they’re kind of becoming foreign policy arm for the US. Because the US is not well respected right now. Is that fair to say?

AM: It’s more than fair to say, I believe Biden’s conference with South Asian leaders was just canceled on top of everything else.

TS: Sorry. And we saw this week Japan and India just signed, like, a $42 billion trade deal. So it kind of seems like they’re smoothing over the rough edges because the United States kind of came after India a little bit earlier about two weeks ago.

TN: Yeah, that’s a good call, Tracy. I think Japan and India have had a long, positive relationship. It’s especially intensified over the past, say, seven or eight years as China has tried to invest in India and the Japanese have kind of countered them and giving the Indians very favorable terms for investment and for loans. And so this is kind of a second part of that investment that was, I think, announced in, say, 2014 or 2015, something like that. And again, as we talked about it’s, Japan intervening to help the US out and obviously help Japan out at the same time. Thanks for that.

Now, Sam. We saw bonds spike pretty hard this week, especially the five year. I’ve got a Trading View source up there on the five year up on the screen right now. So can you walk us through what’s happening with US bonds right now, especially the five year?

SR: Sure. I mean, it’s pretty straightforward. The Fed is getting very hawkish and the market is adopting it rather quickly. And I don’t know how forcefully to say this. The current assumption coming from city is four straight 50 basis point hikes and then ending the year with just a couple of 25. That is a pretty incredibly fast off zero move time, some quantitative tightening, and you’re somewhere around three and a half percent to 4% worth of tightening in a year. That’s a pretty fast move.

So the two year to five years reflecting that the Fed is moving very quickly, you’re likely having the long end of the curve is lagging a little bit. You saw flattening, not steepening this week. The long end of the curve is telling you that the terminal rate may, in fact, actually be at least somewhat sticky around two and a half and might actually be moving a little bit higher. And that terminal rate is really important because that is how high the Fed can go and then stay there. It is also how fast the Fed can get there and how much above it the Fed is willing to go. So I think there’s a lot of things that happened on the curve this week.

TN: Okay. Albert, what’s in on those? Yes, go ahead, Albert.

AM: Oh, I’ve heard whispers that the long bond is going to 2.8% and maybe even 3%. That’s what the whispers have been telling me about that, which is going to absolutely devastate housing.

TN: But that was my actual idea.

SR: Oh, yeah. Housing is done. I mean, you saw pending home sales were supposed to be up a point and down 4%. That’s the first signal. The next signal will be when lumber goes back to $300.

TN: Okay. It seems to me you’re saying by say Q3 of this year we’re going to see real downside in the housing market. Is that fair to say?

SR: Oh, in Q2, you’re going to see real downside in the housing market. Yeah.

TN: Wow.

SR: Pending sales are, I think, one of the most important indicators of how the housing market is going. Right. It’s a semi forward looking indicator. If you begin to see a whole bunch of these homes in the ground stay as homes that are not being built. Right. So if you begin to see just a bunch of pads out there, it’s going to become a significant problem considering a lot of people have already bought the materials to build it off. And you’re going to begin to have some really interesting spirals that go back into some of the commodity markets that have been on fire on the housing front.

TN: Wow. Okay. That’s a big call. I love this discussion. Okay, good. Okay. So let’s move on to the week ahead. Tracy, we’ve had some stimulus announced to help pay for energy. Can you help us understand? Do you expect we’ve seen California and some other things come out? Are more States going to do this or more countries going to do this, and what does that do to the inflation picture?

TS: Well, absolutely. We saw California, Delaware, Germany, Italy talking about it. Japan already. They’re coming out of the woodwork right now. There’s actually too many to list. It’s just that we’re just now this week just starting to see the US kind of joining this on a state to state basis. The problem is that this is not going to help inflation whatsoever. You’re literally creating more demand and we still do not have the supply online. So all of these policies are going to have the opposite of the intended effect that they are doing. Right. It’s just more stimulus in the market.

TN: Do we think there’s going to be some federal energy stimulus coming?

TS: They’ve talked about different options. I mean, really, the only thing that they could do right now is get rid of the federal excise tax, but that’s only really a few cents. And they kind of don’t want to do that because that goes towards repairing roads, et cetera. That doesn’t fit into their plan that they just passed back in the fall. Right. We had infrastructure plan, so they need to pay for that. That’s already passed. So they probably won’t do that.

The other options that they have that they’re weighing are more SPR release, which is ridiculous at this point because they could release it all and it would still not have a long lasting effect on the market. And that’s our national security. It’s a national security issue. And we’re experiencing all these geopolitical events right now. We have bombs in Saudi Arabia. We’ve got Russia, Ukraine. So I think that’s like a poor move altogether.

TN: So if more States are going to come in, is it suspects like Massachusetts, New York, Illinois, those types of places?

TS: Yes.

TN: Okay. So all inflationary, it’s going in the wrong direction.

TS: It’s going to create demand, which is going to drive oil prices higher because we still don’t have the supply on the market.

TN: Okay. Wow. Thanks for that. Sam. As we look forward, you mentioned a little bit about how hawkish the Fed would be. But what are you looking at say in the bond market for the next week or so? Do we expect more activity there, or do you think we’re kind of stabilizing for now?

SR: We’re going into month end. So I would doubt that we’re going to stabilize in any meaningful way as portfolios either head towards rebalancing or begin to rebalance into quarter end. So I don’t think you’re going to see stabilization. And I think some of the signals might be a little suspect. But I do think back to the housing front. I’m going to be watching how housing stocks react, how the dialogue there really reacts, probably watching lumber very closely, a fairly good indicator of how tight things are or aren’t on the housing front.

And then paying a little bit of attention to what the market is telling us about that terminal rate. If the terminal rate keeps moving higher, to Albert’s point, that’s going to be a big problem for housing, but it’s going to be a big problem for a number of things as we begin to kind of spiral through, what the consequences of that are. It will be for the first time in a very long time.

TN: Okay. So it’s interesting. We have, say, energy commodities rising. We have, say, housing related commodities potentially falling, and we have food commodities rising. Right. It seems like something’s off. Some of it’s shortages based, and some of it is really demand push based. So energy stuff seems to be stimulus based or potentially so some interesting divergence in some of those sectors.

Okay. And then, Albert, what’s ahead for equity markets? We’ve seen equity markets continue to push higher. How much further can they go?

AM: Last week they eliminated, I think, up to about $9 trillion inputs, short squeeze, VIX crush. I mean, they went all out these last two weeks. It’s absolutely stunning. From my calculations, I think they expanded the balance sheet another $150 billion. Forget about this tapering talk. There’s no tapering. They just keep on going. How high can they go? That’s anybody’s guess right now. I think we’re like 6% off all time highs. On no news.

TN: So potentially another 6% higher?

AM: Honestly, I know that there’s hedge funds waiting, salivating at 4650. Just salivating to short it there. So I don’t think they can even get close to that, to be honest with you. So I don’t know, maybe 4590 early in the week before they start coming down.

TN: Okay. Interesting. So you think early next week we’ll see a change in direction?

AM: Yeah, we’re going to have to this has been an epic run, like I said, 90% short squeeze, 10% fixed crush. You don’t see this very often. Okay, Sam, what do you think, Sam? Similar?

SR: On equities, I like going into the rip higher. I’m kind of with Albert, but a little less bearish. I think you chop sideways from here looking for a catalyst in either direction. Bonds ripping higher today, yields ripping higher today. Bond prices plummeting. That I thought was going to be a catalyst for equities to move lower. It wasn’t. That kind of gives me a little bit of pause on being too bearish here, but it’s hard for me to get bullish.

TN: Okay.

TS: What’s interesting? I’ll just throw in like, Bama, weekly flows. We actually saw an outflow from equities for the first time in weeks. It wasn’t a lot 1.9 billion. But that says to me people are getting a little nervous up here. Profit taking, as they say on CNBC.

TN: All right, guys. Hey, thank you very much. Really appreciate the insight. Have a great week ahead.

AM, TS: Thanks.

SR: You too, Tony.

TN: Fabulous. Look. I’m married. I’m a man. I don’t notice anything. I noticed the other guys laughed at that. Uncomfortably. That’s great. Okay. I’m just going to start that over, guys. And we’re going to end it.

Visual (Videos)

USD unlikely to continue strengthening, CNY to stay strong


This is the most recent guesting of our CEO and founder Tony Nash in CNA’s Asia First, where he shares his expertise on inflation and the US economy. Will consumers continue to spend to help the economy? What’s his view on Biden’s call to boost oil supply to ease prices? Where does he think the US dollar is headed and how will that impact Asian currencies?


The full episode was posted at It may be removed after a few weeks. This video segment is owned by CNA. 




Show Notes


CNA: What’s still ahead here in Asia First. We’ll check if US companies continue to charm investors with some big earnings in focus. Plus, to give us a stake on markets inflation and the US economy, we’ll be joined by Tony Nash from Complete Intelligence.


US stocks closed in the red overnight as lingering inflation concerns continue to dog investors. The Dow ended lower by six tenths of one percent, dragged down by a four point seven percent. Drop in visa the S&O 500 slipped 0.2 percent. And the NASDAQ fell by 0.3 percent.


Now after the bell, we also had some US tech earnings. NVIDIA shares rose after it beats on the top and bottom lines. The ship maker saw its revenue jump 50 percent on year on strong gaming and data center sales. Cisco shares tumbled and extended trade after missing on revenue expectations before the quarter. The computer networking company also issued a weaker than expected guidance.


For more on the broader markets and economy. We’re joined by Tony Nash is founder and CEO of Complete Intelligence speaking to us from Houston, Texas. So Tony as we heard their inflation fears seem to be back despite better expected earnings but CEO’s are starting to warn of more pain when it comes to supply chains. And that could put a damper on in that could lift inflation. Do you think the US consumers will continue to spend despite all this and will that help the recovery of the US in the next year?


TN: Yeah, I think the real issue here is that inflation is rising faster than wages. And what we’re seeing with oil prices. These oil prices are not terrible given kind of historical prices but it’s oil prices within the context of everything else. Obviously, the supply constraints really are pushing up prices of food and other activities as well as say goods that are imported for say the holiday purchases that Americans will make.


So Americans have absorbed a lot of those price rises to date. They’ll continue to absorb some but I think they’re almost at their limit in terms of what they can tolerate without getting upset.


CNA: Yeah, Do you think there’s a disconnect here when it comes to energy because Biden administration is hoping to boost supply to ease that oil price pressure but OPEC and its allies expect surplus into the next year. So, do you think they’re looking at it differently? And who has it right here and where oil prices headed?


TN: Yeah, I think part of the issue in the US with crude oil is the Biden administration restrictions on pipelines and on the supply side in the US. So, Joe Biden is asking other countries Russia, Saudi Arabia, other OPEC members to supply more oil yet he’s restricting the supply domestic supply in the US. So, I think what’s happening with those other suppliers they have customers who are buying their crude oil. They don’t necessarily want to have to produce more because they want slightly higher prices. They don’t want things too high but they want slightly higher prices and so they’re pushing back on on Joe Biden and saying look you really need to look at your own domestic supply. You really need to look at at those issues yourself before we start to open up our own market.


So you know, the current administration is trying to have it both ways. They’re trying to restrict supply within the US. They’re trying to bring in more supply from overseas. Americans see this and they understand kind of the incongruent nature of that argument from the administration.


CNA: I want to get your thoughts on the US dollar, Tony. Because that hit a 16-month high amid his expectations of more aggressive policy from the Federal Reserve. Where do you think the US dollar is headed and how will that impact us here in Asia, especially Asian currencies?


TN: Sure, it’s a great question. We saw a lot of action with the US dollar yesterday. The dollar index as you said reached highs for in the last say 18 months, two years. And that is on Fed action but one thing to consider is we’re looking at potentially changing the Fed chairman later this year.


So, if the current Fed chairman is exited. There is an expectation of a more dovish Fed chair coming in that’s one possibility. I think people are really trying to… While there is upward pressure on the dollar. People are trying not to get too far too much behind it because there could be a more double dovish Fed chair coming in. So, we think the dollar is overshot just a little bit in the short term.


We don’t expect it to continue rallying at its current pace. We expect say the Euro has fallen quite a bit and depreciated quite a bit in the last say three weeks. It’s going to appreciate just a bit a couple cents over the next month or so. Asian currencies, we think the CNY will stay strong. We think CNY will remain strong through say March, April as they start a devaluation cycle to help exporters. We think the Singapore dollar is going to stay in the same range that it’s in about now. We don’t see much policy change in Singapore and we think with a stable dollar at these levels. We think the same dollar will stay at about the same exchange rate of Scott now.


CNA: All right. We’ll keep our eyes on those currency exchanges and who becomes the next Federal Reserve Chairman. Tony Nash thanks for joining us. Tony Nash there founder and CEO of Complete Intelligence joining us from Houston, Texas.


EM Meltdown: China, Turkey & Russia (Part 1)

The emerging markets expert Michael Nicoletos shares his insights into the Chinese economy and why it’s in a very big trouble?


This is the first part of the discussion. Subscribe to our channel to get notified when Part 2 is out.


In this first part, Michael talked about China’s household debt and how much is that? Can they ever recover from the Evergrande disaster? And how they got into it in the first place? Is CNY still valuable? How do the Chinese get dollars now with their very limited FX reserve? Should you use the digital Yuan? How much is China spending right now to up its GDP?


Michael Nicoletos have spent most of his life around markets, and I used to run a hedge fund for more than 10 years on emerging markets. He shut it down in 2019 to take a sabbatical and Covid 19 hit the world. Now, he is doing a lot of research on emerging markets and trying to see what the next steps will be in terms of the investment world. But in the meantime, he is also advising a few firms on their investment.


Tony Nash met Michael at a Real Vision event in 2019, when he was giving a presentation on China, and he had a chart in there that was actually Michael’s chart. They had a conversation after that and have stayed in touch occasionally since then.


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This QuickHit episode was recorded on October 20, 2021.


The views and opinions expressed in this EM Meltdown: China, Turkey and Russia (Part 1) 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: So on China. Michael, I wanted to ask you, you sent out a tweet. I think it was last week talking about China’s household debt and it’s on the screen now. So it’s talking about how China’s household debt is at $10 trillion and looking at the ratio of China’s household debt to say, Hong Kong and the US. So can you talk to us a little bit about China’s household debt loads and what that really means for the Chinese economy?


Banking bubble in China and Hong Kong


MN: Well, as we all know, it’s been in the news lately. The Evergrande imminent. I don’t know if it’s going to be a default because there are some discussions right now to find a solution. But either way, it’s very hard for it to be repaid at its face value.


Now, the problem here is twofold. One problem is that China is highly levered as a whole, approximately more than 270% of GDP. The other thing is that real estate is approximately 62 trillion, I’d say the property market, which includes also home prices and everything. It’s about 62 trillion, of which around 10 trillion around sold properties. So it’s a very big backlog. The real estate crisis has started with Evergrande, and we’ve seen actually bond yield spiking in China real estate bond prices. And the big issue here is that banks are the ones who lend obviously to the real estates. So right now, banking assets in China are around 400% of GDP. And in Hong Kong, which is a proxy to China is around 900% of GDP. Just to put it in perspective.


In 2007, the relevant numbers for the US was 230%. And Ireland where the crisis started was like 700%. So we’re past both those levels. So we see that there’s a very big debt problem within China. Now, because China has capital controls in place, money cannot leave the country. So the bubble grows, grows, grows. But the money stays in the system.


So people now are starting to be afraid. And it’s the first month after six years that retail prices started falling in China. So this is creating a vicious loop. That fear that the contractor will not deliver your house. It means that you’re not going to purchase a new house. So you’re afraid. People in China have stopped buying, which creates a negative, vicious look.


So China has tried to avert this at least three or four times in the past ten years. Every time China is trying to stem back from giving you debt, we see such a small crisis, and then China is forced to reverse immediately because it cannot afford. It’s too big of an economy. Real estate is approximately 29% of China’s GDP. So you understand that something like that is very hard to control.


Now, China has been a rock in a hard place because I’ve been trying to shift from an investment, let’s say, investment intensive economy to a more consumption driven economy.

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TN: This has been a 20-year transition, right? It’s not something they started two years ago. They’ve been trying to do this for, like, 20 years, right?


MN: They’ve been trying to do this, say ten years. But let’s see, consumption as a percentage of GDP is around 38%. When in the US, it’s around 70%. It’s very hard to get that number higher. And given that all the wealth or most of the wealth by Chinese people, is linked directly or indirectly to real estate, you understand that this is a chicken and egg problem. If you try to stop one problem, you’ll create the other problem.


TN: Sure.


MN: So there are these problems right now in China. I think China will be forced to reverse course again. I don’t think you can afford to create a real estate crisis. I don’t think there would be a world contagion, by the way. But I think it could create a spillover effect with other real estate entities. Evergrande, the size was around 300 billion. It’s actually the biggest one. So we’ve seen the biggest one. And the thing is this could spill over to the whole industry.


Now, what’s the problem here, besides that? The problem is that China has been trying to convince banks and actually all the regions to stop giving loans, which are unproductive. Now, because GDP in China is an input number and not an output number like it’s in the Western countries, whatever the number the government sets, that’s what everyone tries to achieve and they can achieve it by giving more money.


TN: I just want to stop you there because I don’t think that point is well understood. When you say GDP is an input number in China and it’s an output number everywhere else. I’ve been trying to make this point for years to people, and you say… Help me understand, when you say it’s an input number. What do you mean in simple terms?


MN: In simple terms is the government wants 7% growth, so everyone will do the best they can to achieve that 7% growth, no matter what. So it means if I’m a bank or if I’m a region in China and I need to do more, I need to produce more growth. I’ll give out loans, which could be unproductive.


What do I mean? If I build a bridge, this is the most common example. If I build a bridge, when I build a bridge, this is counted in the GDP growth. Now, if I destroy the bridge, that is not deducted by the GDP. Right? If I rebuild the bridge, it’s added again. So in theory, you could make one bridge, build it, destroy it, build it, destroy it. And you would only have growth. So when China wants an input number, it will create bridges. The bridges could be, as we say, the usual “bridges to nowhere.” The famous quote. Or it could be bridges, which are useful. So all these unproductive debt went mostly to properties. And that’s why we see all these vacancies and all these ghost towns around China which actually were built and this was added in the GDP growth numbers. But then no one went to live there and the towns are there, and now they have to bring them down.


TN: Right. Now, you’re famous for kind of calculating for every say CNY spent by the Chinese government, it results in X amount of GDP, right? There used to be a multiplier effect to CNY spent and GDP. But you started seeing as that was diluted. So when you last calculated that, what was that number? For every say Chinese Yuan spent how much GDP was created?

China credit to GDP ratio


MN: So your viewers can understand because it’s a bit technical. So let’s assume you’re an economy and you create debt. You want that debt to create more GDP than the debt you’re giving. So if you’re giving one unit of debt, you want that one unit of debt to create one point, something of GDP.


So in theory, you would want it to be two, three, four. Okay, that’s not very easy. But if it’s a plus, it means that your debt was accredited. So it helped the economy. The problem here is, since 2008, China from using approximately let’s say, two units of debt to create one unit of GDP. So we’re already negative, because when you have two units of debt to create one unit of GDP, it means that that one unit will end up as a bad debt at some point. It’s not imminent, but at some point it will add up. So we went from 1 to 2.2 units of debt to create one unit of GDP. And right now we’re approximately between eight and nine units of debt to create that same one unit of GDP. So China needs more and more debt to sustain the same rate of growth.


TN: Right. So instead of a multiplier effect, which is what kind of economic impacts people usually talk about, there’s almost a divisor effect in China.


MN: You could say that. But because it’s a closed economy, that money can’t leave the system. So in theory, if you had a free account or if you had an open capital account, the Chinese will say, oh, my God, my currency is overvalued. Or let me take some money out of China and make a dollar. Now, this is not possible because Chinese have, I think, a quota of $50,000 a year they can take out? Something like that. Now, obviously, there are ways to take money out, but it’s not the easiest thing, and it’s not for everyone.


TN: I guess. It’s jewelry and watches the latest.


MN: Right. Okay. It was also Bitcoin. They try to be creative. Well, there’s a good ratio here, which is pretty interesting, and people forget. Now, if you devise the M2, the FX reserves to M2, why do I do that? Because let’s assume money is the money supply within the system. The ratio goes to 9%. Now, the Tiger countries in the Asia crisis in ’97 had the same ratio of approximately 25% to 30%. When it dropped below the 25%, you had the big devaluation.


Now, China doesn’t have a big external debt. So since it doesn’t have a big external debt, there is no trigger from that side of the equation for China to be forced to liquidate that fixed reserves to cover for it. But even though they have approximately $3.2 trillion of FX reserves and maybe another trillion from the banks and everything. I’d say 4 trillion. The M2 is approximately around $36 trillion right now. So these numbers… Imagine a hot balloon that you put air. At some point it’s going to blow. We don’t know what that level is. Okay. It could be like ten years before that happened. Or we could see, in my view, the Japan-like model where for ten years, you have an anemic growth. But you don’t see anything really, not a substantial bust. Because one thing.


TN: You also just destroyed the idea of China becoming a global currency, of the CNY becoming a global currency. Right. Because if they do have to trade on an open basis, then it’s way overvalued. Right. It’s like monopoly money.


MN: Well, China tried or is trying, at least. And it appears through Alipay and WeChat to create a digital Yuan. Why does he want to create a digital Yuan. It’s pretty simple. If the world is using a digital Yuan outside China, it means that the CNY or Yuan or Renminbi or whatever you want to call it, will be used abroad. So this means that it’s usage outside China will increase.


We’ve seen, however, that during the last two years, and I’m sure you have the guests, which are better to talk about this, know this subject a bit better than me. The dollar usage has gone up. The dollar is around 87% of global transactions. It actually went up. So there’s a discussion where everyone says the dollar is dying. The dollar is dying, the dollar is dying. Okay. And I understand where it’s coming from because of the policies. But monetary policies are relative. They’re not absolute. Maybe US is doing something bad, but the rest of the world is not doing something better.


So right now, the US dollar dominance increases. Now. I’m pretty sure I understand that this cannot stay at current levels. But going from 87% to being to 5%, it’s not something that’s going to happen in the next 2 years.


TN: I think the dollar had been down to like 82% six to seven years ago. And seeing it go up to 87%, that’s not a small amount. But the Fed does not want to be the World Central Bank. The US Treasury does not want to be the world’s treasury. So there’s this belief that the US wants to be the dominant global currency. I don’t necessarily believe that’s true. I think there are advantages to having a large portion of global currency usage, but I think 87% is just way too much. It’s way too much concentration of risk, actually, for the Fed and for US monetary officials. Go ahead. Sorry.


MN: No, you’re absolutely right. I think you’re right. However, the US, I think would like to remain the number one. Now, I don’t know what the percentage, the optimal percentage would be. But I’m pretty sure they prefer being the dominant than not being the dominant.


TN: Oh, yeah, absolutely. They want to say number one, but 87% is just too much.


MN: Since we’re talking about the dollar. The important thing about the dollar is that if the dollar strengthens, okay. And I don’t have a strong view here, I think it’s going to strengthen, but I understand if it doesn’t. If the dollar strengthened, this puts the pressure on emerging markets as a whole, because usually emerging markets tend to borrow in foreign currency because the foreign currency interest rate is much lower than the local currency.


For example, in Turkey, it’s 20%. The dollar is 0%. So if there’s a Turkish corporate wants to launch a bond, it will borrow on dollars at five 6% instead of borrowing at 20%. So they try to do that.


Now, as the dollar strengthens, especially for emerging markets, this puts pressure to repay the debt and it becomes harder and harder. So if the dollar were to strengthen, that would create a very, very big problem. I think the Goldman Sachs issued a report where it showed that the growth divergence between emerging markets and developed markets is at its lowest point. If you look at the cycles and it leaves that it could expand and right now, I think it discounts like a 4% growth for EM as a total.


So if the dollar strengthens, I don’t think we’ll see these numbers. I think you’ll see pressure on EM. Huge.


TN: Talking about EMs, and we talked about reserves and you mention Turkey. Let’s talk about Turkey Turkey for a minute because you’ve made some really interesting statements about Turkey. And I’d like to really understand your perspective.


On rate cuts: follow the leader

8 August 2019

We speak to Tony Nash, Chief Economist and CEO of Complete Intelligence, on the decisions of central banks of New Zealand, India and Thailand to cut interest rates, the PBOC’s motivation to set its reference rate for the yuan, and whether investors will be holding on to the greenback as a safe haven currency.


Trump, TPP, yuan SDR make US-China Joint Commission trade talks a very different scene

22 November 2016 | CNBC

As the annual trade talks U.S.-China Joint Commission on Commerce and Trade (JCCT) gets underway in Washington D.C., the backdrop could hardly be more different from a year ago.


In 2015, each side in the series of annual meetings that cover everything from agriculture to cybersecurity had its own policy advantages, and policy continuity was the result of years of work by both sides.

Just a year ago, enthusiasm for the Trans-Pacific Partnership (TPP) also remained strong, with an official signing ceremony in Auckland, New Zealand, just months away. The agreement was positioned as America’s last, best hope to stay relevant in Asia’s economies.


And by design, the agreement positioned China as an outsider in its own neighborhood, instead of lining Asian countries up behind aging American assumptions around trade, intellectual property, and services in the world’s fastest-growing region.

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