October 2015

Four Weddings And A Funeral

Anatole Kaletsky

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Is this the end of a cyclical bounce?

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Or just a correction after a structural break-out?

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Five big events have changed the world this year…

• US: employment growth drives self-sustaining expansion

• EU: ECB bond-buying resolves the euro crisis

• Oil: US$50 price cut redistributes US$2trn to consumers

• Japan: Abe’s Three Arrows all shoot in the same direction

• China: orderly slowdown turns into collapse ???

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… but markets are back where they started

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US cycle has dominated the world—until 2015

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US GDP has grown faster than 3% for 5 years

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Volcker’s message to Yellen: stay behind the curve

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The European QE is bigger than that of the US or Japan

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EU credit conditions are strongly improving

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… as are economic conditions in the “periphery”

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Oil prices: long slides follow big jumps

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Is US$50 a ceiling or a floor for oil?

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Myths and truths about the China “crisis”

Myth 1: The economy is collapsing.Truth: The economy continues a structural slowdown as China transitions from capital-intensive to consumption-led growth.

Myth 2: China’s data is a pack of lies—growth is “really” 2-4%.

Truth: China has not shied away from reporting bad numbers, but its statistical system does underestimate volatility. Growth is ca. 6%.

Myth 3: China will competitively devalue the renminbi. Truth: A competitive devaluation is not in China’s interests, but inclusion in the SDR basket requires a more market-driven currency.

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China is slowing but not collapsing

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There are huge disparities in regional and sectoral growth

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What China’s mini-devaluation was trying to fix

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Bullish investors must now look beyond the US

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Outside the US, the end of the crisis still is not priced in

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The US dollar is getting too expensive

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In 1994 the main losers were the US dollar and US bonds

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In 2004 the US dollar fell again, but other assets rose

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