mjtaylor.id.blockstack

Mercantalists Rejoice, No Let-up in NTBs

October 19, 2021

Mercantalists everywhere can celebrate that efforts to impede trade have not slackened simply because of the break-neck de-globalization instigated by the pandemic. Now the WTO's database of Non-Tariff Barriers is back up, we know that trade-warriors in the US, EU, China and Japan have raised a fur...

The Problem is Entropy, Not Economics

October 15, 2021

The language of economics is not being particularly helpful during the pandemic and its early aftermath. Describing what occurred in 2020 as a 'recession' was fundamentally misleading, since a government-mandated and paid-for cessation of economic activity need share neither the causes or the result...

Global Inflation Normality - A Running Account

July 15, 2021

July 15th 2021 We've come a long way in data and in expectations since I started this review in January, when I calculated that the global 'normal' inflation trajectory would peak at 2.4% Nov 2021 (see below). When we take into account the inflationary outbreak since then, that 'normal trajectory...

The Wrong Super-Cycle

June 08, 2021

The rise in commodity prices - the CRB index is up 95% in dollar terms since its pandemic nadir of April 2020 - has encouraged the view that a new 'commodities super-cycle' is hoving into view. The justifications offered are unconvincing. The real super-cycle the current price rises are telling us ...

Coldwater Slow Model Update - Japan 1Q21

May 18, 2021

The publication of Japan's 1Q GDP accounts allows us to update the Coldwater Slow Model valuations for TOPIX. One conclusion is inescapable: for TOPIX, this is as good as it gets. Downward pressure on TOPIX valuations can be expected throughout 2021, starting now. The Coldwater Slow Model valuation ...

Inflation-Hedging, or a Bolt Hole for the End of the Financial Supercycle?

May 04, 2021

Twice today I have been asked the same question by two very different types of investor - one a quant-driven strategist, the other an entrepreneurial financial company business-builder. Given that TIPS yields have been negative since the onset of the pandemic in early 2020, is there available any o...

Coldwater Slow Model Valuation - US 1Q21

April 29, 2021

1. The surge in the S&P 500 during 2020 and 1Q21 has been largely supported by a phantom jump in profits revealed in the Kalecki calculations. The surge was neither irrational and has not resulted in an 'irrational' over-pricing. 2. But as far as Kalecki profits are concerned, the 12m to March are ...

Normality? It's Been Nice Knowing You

March 24, 2021

You may not be interested in normality, but normality is interested in you. After the extraordinary measures taken during the pandemic, we can expect normality to be resumed sometime this year. But which normality? The normality which prevailed before the Crisis of Western Financial Institutions i...

EU Emissions Trading Scheme - Another Fine Mess

March 23, 2021

Whilst US bond markets are reacting to the possibility of a growth surprise or an inflationary shock, or both, and Asia is scrambling to maximise their benefit from the US recovery, the Eurozone looks to be stumbling towards, at best, stagflation. This is partly the result of continued negative inte...

Conservative Corporate Japan Knows How to Crisis

March 08, 2021

Japan's MOF's huge quarterly survey of private sector balance sheets and p&ls found corporate Japan in 4Q exiting the extraordinary circumstances of 2020 in surprisingly good shape. The combination of historically conservative balance sheet management, operational discipline and some helpful terms-o...

2021 - No Choice But to Expect Policy Errors

March 01, 2021

It's a hard and negative thing to say, but the most salient feature of this year is its unique ability to generate important economic and monetary policy failures. If we are lucky, these will be caught in time and we will remember 2021 as a year of dramatic policy reversals. If not, 2022 and onward...

Consumer Price Inflation Supercycle Fingerprint

February 23, 2021

Do we live in a world which is fundamentally: disinflationary for consumers; inflationary for consumers; or neither? Spoiler Alert Conclusion: At the beginning of 2021, then, on a global scale, we are consumer inflation-neutral, with mild regional characteristics. The supply and demand disruptions...

Global Inflation in 2021: The Shape of 'Normal'

February 18, 2021

Without wanting to make any wider claims about 'inflation, reflation, or stagflation', here's what we can expect to happen to global inflation this year if everything is absolutely normal. In 2020, global inflation fell to 1% yoy on a 12ma, down from 2019's 1.6%. If the trends of the last five ye...

Coldwater Slow Model Update - Japan 4Q 2020

February 17, 2021

Japan's 4Q national accounts are out, allowing us to update our valuation of TOPIX by calculating both the change in Kalecki profits and the appropriate multiple upon which those profits should be valued. Conclusions Spoiler: The rise in the TOPIX is understandable - justified even - by the rise i...

Coldwater Slow Model Update - UK 4Q20

February 12, 2021

Valuation from the Coldwater Slow Model's first principles suggests that: The FTSE 100 continues to be approximately fairly valued when considered as an extension of US market valuations. The FTSE 250 is now the most over-valued against fair value as it has been for at least the last decade. S...

The Recovery of 2021

February 09, 2021

'If I were you, I wouldn't start from here'. In 2021, Western economies will discover the early stages of recovery from the epic dislocations which accompanied the pandemic in 2020. Quite what this means is already being fought over by economists, central bankers and politicians, in a cacophony o...

Crypto Thoughts: Volatility and Value

January 26, 2021

The last few weeks seems to have produced a torrent of comment, almost all negative, about crypto currencies, and particularly Bitcoin. Two sets of complaints tend to feature: first, that Bitcoin, and by extension cryptos entirely, are based on 'nothing'; and second, that volatility of crypto price...

About That 2021 US Rebound - Corporate Investment

January 15, 2021

There are three possible drivers for a post-covid 2021 US economic domestic rebound: household consumption, business investment, and fiscal stimulus. The previous piece looked at the current data which cast doubt on the likely strength of the immediate post-covid economic rebound. Today's piece loo...

Bleak Expectations

January 14, 2021

Since 2013, the NY Fed has conducted a fairly comprehensive monthly survey of householders' economic attitudes and expectations. January's results, out today, make rather sobering reading. In short, the household sector think inflation's going up, taxes are going way-up, getting credit remains extr...

About That 2021 US Rebound: Household Sector

January 14, 2021

The surprisingly bleak account of US consumer attitudes which surfaced in the NY Fed's December survey of attitudes has passed almost unseen. When I relayed the details in 'Bleak Expectations' earlier this week, I got some resistance: surely this reading conflicts with the widely-held expectation of...

2020 : Manzikert

December 30, 2020

Empires usually don't collapse. Like great trees, they decay from within and eventually succumb to their fate. In 1071, probably nobody that mattered in Constantinople thought that the defeat in Manzikert, towards the eastern borders of the vast and ancient Byzantine empire had sounded its death-kn...

2021 Fiscal Fortunes

December 21, 2020

2020 was dominated by the damage done by the pandemic and the fiscal rescues done to contain it. 2021 will be dominated by the continuation, moderation or reversal of those fiscal measures. Both economic growth and corporate profits are hostage to how and when countries decide to edge back to fisc...

Govt Debt Blowout - The View from the Deanery

December 06, 2020

This week the Peterson Institute for International Economics arranged a convocation of the West's most eminent economists to offer advice on fiscal policy and public sector debt to the incoming US administration. The rosta of participants could hardly be more distinguished. You'll know the names: La...

The Shape of Things to Come

November 17, 2020

No-one should have faith in economic forecasting: if knowledge of that kind was truly possible, the argument for free markets would be lost for ever, since centrally planned economies would outperform every other model. The reason: the argument for competition is precisely that it discovers informa...

Chaos, Confidence, Money and Trade

November 14, 2020

The final quarter of 2020 may seem, objectively, to be an unusually chaotic and even threatening time, as the world attempts to avoid or navigate a second wave of Covid-19, whilst potentially decade-defining political change unfolds in the US and Europe (via Brexit). Conditions like these ought to ...

Central Banks and Digital Currencies: Midwives and Undertakers

October 15, 2020

Sometimes the most revolutionary developments and initiatives disguise themselves in the dullest language. This is the case in a paper released by the Bank for Int'l Settlements (BIS) last week entitled: 'Central bank digital currencies: foundational principles and core features.' This relayed t...

Hong Kong - Still Crucial for China

October 14, 2020

One way of looking at China's suppression of dissent in Hong Kong is that, rather than being willing to kill the goose which lays the golden eggs, it is making the territory safe for Chinese finance. That, at any rate, is consistent with the accelerated boom in equity financing activity underway in...

Prosperity and the Environment

October 05, 2020

It is easy to become overwhelmed by the way these two concepts rub up against each other, usually destructively. At first it seems that environmental concerns, fears, hopes and practices must be the enemy of prosperity. A little later it seems unavoidable that the idea of prosperity cannot survive ...

Climate Muscle Memory - August 2020

September 28, 2020

Whilst global temperatures over the last three months retreated from the peaks seen from Dec 2019 to May 2020, it seems unlikely the rising trend of the last 10 years has been deflected in any significant way. The evidence is clearer from the satellite readings of the lower troposphere than from the...

Repurposing VAT for a Circular Economy

September 09, 2020

1. Discovering a Circular Economy is necessary, since a) CO2 problem is real and is plausibly linked to the long-term trend of rising global earth/ocean/troposphere temperatures; and b) current efforts to curb CO2 emissions have not even stopped the acceleration in atmospheric CO2 concentrations; an...

The Valuation Project - Part 4, Germany

September 08, 2020

The first part of this project suggested a methodology from first principles for valuating stockmarkets which aimed to meet two criteria: First, that the first principle assumptions seem reasonable: ie, that there is a reason why they ought to work; Second, that in practice, that the valuations prod...

What is the Circular Economy?

August 25, 2020

Environmentalists need to refocus their efforts and imagination towards discovering the broad array of skills and technologies to bring to birth a circular economy in which a massive improvement in the efficient use of all kinds of resources squares the circle between prosperity and responsible envi...

The Valuation Project - Part 3, Japan

August 19, 2020

In the first instalment of this project, I proposed that a valuation of stockmarket indexes might be possible. The idea stemmed from the principle that a fair price for a financial asset would be one in which we could expect its earnings to allow it to retain its place in the economy. This suggested...

This is Not a Recession

August 14, 2020

Words matter. In economics they matter profoundly because an ontological complacency, or blindness, allows a thousand arguments to bloom but subsequently bear no good fruit. Truth to tell, I have come to believe that most of the worst and most contentious problems in economics persist because of th...

The Valuation Project - Part 2, the UK

August 06, 2020

I set out to construct a reasonable valuation framework for stockmarket indexes which abandonned the concept of 'risk free rates' in the light of central banks' dramatically increase influence on those rates. For that framework I set two tests: 1. Ought the method work - ie, does it seems a priori ...

Stockmarket Index Valuation from First Principles - Part 1

August 04, 2020

Stockmarket valuations: there are two related questions: How should a stockmarket be valued? How is a stockmarket valued? It is natural to expect that these two questions resolve down to the same question: how do you value stockmarkets? In fact, however, the 'traditional' Capital Asset Pricing Mode...

John Gray, Pessimism and Cultural Challenge

July 23, 2020

The philosopher and historian John Gray asserts in a recent extended interview that we are going through a period of change even more dramatic than the fall of communism in 1989/90, laments that this could be the death of western liberalism, and that there will be no restoration of the world we hav...

Climate Muscle Memory Gym - June 2020

July 15, 2020

Observation: June's temperature measurements all record the retreat from the slightly scary peaks of early in the year, but there is some way to go to suggest we're now still breaking out from the post 2016 plateau. Meanwhile, there is no evidence at all that the C-19 collapse of the world's indust...

The War on Trade - Combatants, Alliances and Cassi Belli

July 14, 2020

I have written repeatedly on the War on Trade being waged more or less covertly by regulators in the US, the EU, Japan and China. Between them, at last count, they had erected 7,220 non-tariff barriers (NTBs) to trade, all of them effectively restricting imports. In today's shrunken trade environme...

Humber River Delta II: A Circular Economic Fantasy

July 07, 2020

Back in January, I wrote The Humber River Delta - An Economic Fantasy, which made the case for a Special Economic Zone (SEZ) encompassing Hull, Grimsby and Scunthorpe. The SEZ was a response to the multi-generational policy failures which have allowed the area to at first gradually, and then unignor...

No Let-up in the War On Trade

July 06, 2020

Now would be a good time to attempt a truce in the war on trade being waged by the world's major economies, because even as world trade contracts, the legal restrictions designed to strangle it continue to proliferate. Right now, the weight/cost of non-tariff barriers (NTBs) per dollar of imports ...

Climate Muscle Memory Gym - May 2020

June 09, 2020

If there's any upside to coronavirus' global economic coronary, it is widely held to be the helpful fall in CO2 emissions, held by enthusiasts to show the way to 'tackle climate change'. But the data tells us fairly unequivocally that if there is to be any measurable positive impact on global CO2 ...

Scar Tissues

May 09, 2020

Audio Version is here If the post-Covid recovery is unacceptably sluggish, 'economic scarring' is not a useful explanation. Policy failure is. There's no possible doubting the short term gloom. What sort of recovery we have is hostage to two factors: how Covid-19 is cured/treated/contained/recurs...

Abroad Thoughts from Home

May 06, 2020

I wonder if it's like this for you. A couple of days ago, I was skyping with a friend I've known for decades. He not British and lives abroad, but keeps a flat in London where he's a regular visitor. Over the years his friendship is something I've come to value deeply. We were talking economics, a...

Covid Case Notes China: The Maths of the Aftermath

April 28, 2020

Inadequate and untrustworthy as its data may be, China is so far the only set of signals we have for what happens in the immediate aftermath of the first struggle with Covid-19. What hints, if any, can we pick up? The impact on GDP is the starting point: 1Q GDP fell 6.8% yoy in real terms, cutting t...

Covid Side-Effect: Data-Blindness

April 23, 2020

The pandemic has left us blinded to current economic circumstances, with unprecedented data-volatility acting as a smothering blanket under which any number of possible realities and outcomes can be imagined. This unregistered ignorance by itself means financial markets are already functioning in a...

Climate Muscle Memory Gym - March 2020

April 22, 2020

Temperature records show March cooling slightly from the worrying highs of Dec-Feb, with the clearest fall showing in satellite records of atmospheric temperatures. Still, to my eyeball, this doesn't look to have cancelled the accelerating heating seen since early 2019. The Goddard surface temperat...

Our Times: Where It Went Wrong

April 08, 2020

Even before coronavirus put our institutions, finances and mental picture of how the world works under pressure, a series of 'unexpected' political developments in the West adverted to a widespread discontent with how globalized capitalism was working. Those 'unexpected' developments surely include ...

Paying for It: Part III - Central Banks & Debt Cancellation

April 06, 2020

There is a seemingly attractive way of financing the expected massive expansion of government debt: get the central bank to buy it, and subsequently simply cancel it. The first thing to acknowledge is that this looks like an attractive, and possible, option. After all, around the world central banks...

Paying for It: Part 2 - The Great Kanto Earthquake

April 01, 2020

Think coronavirus is bad? The catastrophic Great Kanto Earthquake struck on 1 September 1923, leveling most of Tokyo and Yokohama. The casualty statistics are shocking: 91,000 killed, mostly in Tokyo and Yokohama; 13,000 missing; 52,000 injured; 69,000 houses lost or damaged. At the time it was es...

Paying for It: Part 1 - The Sinking Fund

March 31, 2020

We don't know the cost of Covid-19 in terms of human life, lost production, jettisoned employment, bankrupties and credit impairments eroding financial systems etc. But all of them imply an assault on fiscal cashflows and national balance sheets far greater than anyone expected, and probably unseen ...

View from the Windscreen, Hurtling Down (La Peste, La Chute)

March 18, 2020

The structure of Eurozone profits disclose a heightened vulnerability to the likely negative impact of the global coronavirus recession, but there is better news about the valuations of those profits. As the chart below shows, valuations of the EuroStoxx index relative to Kalecki profits ended 2019 ...

Climate Muscle Memory Gym - Feb 2020

March 17, 2020

Yes, there's no shortage of things to be alarmed about, but despite that, if I'm to put on some climate muscle memory, it's important I get back in the gym and work that data. The data is now in for February, and it tells us it was a hot hot month, with the rise seen in much of 2019 accelerating in...

Healthcare and Wealthcare

March 06, 2020

Probably no two recessions are exactly the same. However, the general idea is that they arrive when a degree of malinvestment has evolved and been recognized by markets, with the subsequent recession being an unpleasant process in which resources are, ultimately, redeployed to open the way for a new...

Ill Seen, Ill Said

February 29, 2020

The predicament is unprecedented in my experience. The best I can do is tell you honestly what I believe. First, almost all of the economic data currently being released is irrelevant, since almost all of it records how the economic situation was developing before the coronavirus took hold. So fast...

Hong Kong 2019: The Siege Before Coronavirus

February 26, 2020

You'd have thought things could not get much worse for Hong Kong than what it experienced in 2019, when unresolved political antipathies brought the SAR to a functional halt on a fairly regular basis and undermined the authority of the government in spectacular fashion. But then January 2020 brought...

Still Thinking About Coronavirus and Stagflation

February 21, 2020

Two weeks ago - before I got struck down, ironically, by norovirus - I suggested some ways of thinking about coronovirus. Two weeks down the line, there is more to say. Let's start with the positive: if the publicly available data on infection is correct, then it looks as if the feared global pand...

Climate Muscle Memory Gym - Jan 2020

February 19, 2020

Temperatures: Goddard's Jan surface readings show almost no retreat from Dec's spike in anomalies, down 0.01c to 1.49c. The land & ocean record shows a rise of 0.07c to 1.18c. Spencer's record of lower troposphere temperatures was unchanged from Dec's near-peak. Observation: All three records sh...

Turkey On the Turn

February 09, 2020

There are good reasons why Turkey fell off the international economic radar a couple of years ago: perverse policy choices generating a classic emerging market denouement in which overheating, over-leverage, falling returns on capital, and negative cashflows eventually undermined the currency and sh...

Thinking About Coronavirus

February 08, 2020

From every angle, the race is on to understand the impact of the coronavirus. This week, for example, has seen a proliferation of reasoned estimates about the scale of the hit to growth it will have on China and the rest of the world. I salute those economists brave enough to make those estimates ...

Climate Data: Time to Develop Muscle Memory

January 23, 2020

Given the amount of attention given to climate developments by politicians, media and increasingly corporate bosses, it is surprising that key datapoints in this argument do not feature in the regular calendar of economic news. Regardless of what one ultimately believes about the veracity of claims ...

China's 2019: Treading Water, Not Waving, Not Drowning

January 20, 2020

China's data-drop this Friday closed the book on 2019 and initiates a couple of months of near data-silence - we won't be getting substantial updates until mid-March. So let's take stock. I have been watching China's economy for three decades now (good grief!), and it's fair to say that 2019 was ...

The Humber River Delta: A Fantasy

January 08, 2020

Leaving the EU gives Britain the opportunity to break free from an economic policy-set which is not only internationally uncompetitive, but in some cases specifically damaging. Naturally, there is great reluctance in Europe generally to acknowledge policy failure, but the data is in, and is fairly...

US Inventory Still Needs to Go

January 07, 2020

Today's trade and factory data added further detail to the theme I wrote about in this week's Global Weekly Summary - namely that the US is involved in an inventory-dump which is playing nicely for the trade balance, but is hobbling the industrial economy. More, attempts to shift inventory, which ha...

2019: Funk, Lies & Displacement Activity

December 27, 2019

It is perhaps a bit aggressive to acknowledge it, but in economic terms 2019 was a year of funk, lies and displacement activity. Let's start with Funk. As part of my daily patrol of global economic data, I separate out confidence survey data from the 'hard' data reporting trade, industry and dema...

Paying Attention

December 18, 2019

“There are some resources we hold in common such as the air we breathe and the water we drink. We take them for granted, but their widespread availability makes everything else we do possible…the valuable thing that we take for granted is the condition of not being addressed…Attention is the th...

Britain: Why the Cycle Needs a Government

December 12, 2019

Today is election day: but almost certainly it won't bring the great political realignment and policy re-invention which must inevitably appear over the next few years. If the Conservatives squeak through to a workable majority, we can expect sufficient capital spending rebound to fend off recessio...

Japan: Deteriorating Duponts Meet the Business Downturn

December 11, 2019

The sharp deterioration in Japan's 4Q Business Outlook Survey shouldn't really have come as a shock, even though historically this survey has generally been steady in the fourth quarter. This year, however, the assessment of large manufacturing companies fell 7.6pts to minus 7.8, and for large compa...

The Collapse in Japan's Machine Tool Orders

December 10, 2019

We get used to things: when we learn that orders for Japan's machine tools fell 38% yoy in November, the initial reaction is simply 'so what's new'? After all, these orders have been falling by 30%+ yoy since April, so today's lousy news is nothing new. But it is. November was the month when the ba...

US: How Expensive is SPX? An ROC and Profits View

November 27, 2019

The 2nd estimate of 3Q GDP upped the annualized growth rate to 2.1% from the initially estimated 1.9%. The slight upward revision slightly alters the picture for our Return on Capital Directional Indicator (ROCDI), and also for Kalecki profits. With total capital stock growth easing to very slightl...

The Vulnerabilities of Germany's Escape from Recession

November 22, 2019

Germany released the detailed breakdown of its 3Q GDP, giving us the opportunity to judge whether its narrow escape from technical recession (down 0.2% qoq in 2Q followed by +0.1% in 3Q) looks sustainable. What do we find? First, in nominal terms yoy GDP growth accelerated to 3.1% in 3Q from 2.1% ...

Singapore's One-Trick Services Economy

November 21, 2019

Singapore's 3Q current account surplus looks huge - S$22bn, equivalent to 17.8% of 3Q GDP - but its composition emphasises how, as an international services centre, it has become lop-sidedly dependent on financial services. In the year to Sept 2019, Singapore's financial services trade generated ...

Hong Kong - Unexpected Signs of Resilience

November 18, 2019

The economic news from Hong Kong is almost as black as it can be. In 3Q GDP shrank 2.9% yoy in 'real' terms and, probably more importantly, shrank 0.5% yoy in nominal terms. That's the first contraction in nominal terms since 2008. In nominal terms, gross fixed capital formation dropped 14.7% yoy...

US Services - Two Poor Indicators

November 05, 2019

So who are we to believe? October's ISM non-manufacturing composite index rose 2.1pts to 54.7, suggesting a slight improvement in the service-sector economy; but Markit's services PMI fell 0.3pts to 50.6, which was the worst result since February 2016 and suggested the service-sector economy is almo...

US Labour Markets Still Strong

November 01, 2019

The 128k rise in October's non-farm payrolls beat a genuinely muted consensus (90k only), even whilst being signally weaker than the 171k which was averaged throughout Jan-Sept. This should not disguise the fact that the twin labour market reports showed unexpected strength. It came in two main asp...

Hong Kong - The Bills Are Coming In

October 31, 2019

The mass protests and political standoff are bringing Hong Kong to a halt economically. This isn't exactly news: we already knew retail sales fell 6.7% yoy in June, 11.5% in July and 23% yoy in August, with deflections below seasonal trends or 1SD, 1SD and 2.4SDs respectively. We get the numbers for...

Confessions of an Economist

October 14, 2019

I was an economist before I knew the word. Born in an industrial town in West Yorkshire, born, actually, in what has a good case to be thought of as the industrial town of the region - so much a pattern of spontaneous industrial development that a biography of the World Bank put its name on the cove...