July 2016

[admin]

Nobody seems to be paying attention to the underlying fundamentals..

EMs have found themselves in favor again after a wobbly 2015. For the week ending July 15, EMs attracted the strongest level of portfolio inflows since September 2013, the Institute of International Finance (IIF) noted on Wednesday. Financial institutions, including BlackRock and Bank of America Merrill Lynch, have struck a bullish note on EM equity and credit markets, citing the sector's high yields and support from easy monetary policy. But that resilience may not last long. Moody's warned on Thursday that debt is now growing faster than gross domestic product (GDP) for many EM economies, making them vulnerable to external shocks.

Asia emerging markets lead debt growth globally, Moody's warns

Private debt is to blame, according to the ratings agency. Since 2005, private sector external debt has grown at an annual rate of 14.3 percent compared to 5.9 percent growth rate for public sector debt." Asia-Pacific was leading the credit build-up, with debt levels rising at an average rate of 13.5 percent a year—more than any other EM region. China, India, Indonesia, Taiwan and Malaysia were the particularly worrisome countries in the region, Moody's said.

Asia emerging markets lead debt growth globally, Moody's warns

[admin]

We are starting with buying 1000 shares in Sketchers at $24.37. These shares have been punished too much, and are cheap.

[admin]

Solars have been under pressure for quite some time, and here is one reason why:

It was only two years ago that Elroy Holtmann spent about $20,000 on a home solar array to help cover the costs of charging his new electric car. With the savings on his monthly electric bills, he figured the investment would pay for itself in about a dozen years. But then the utilities regulators changed the equation. As a result, Pacific Gas & Electric recently did away with the rate schedule chosen by Mr. Holtmann, a retired electrical engineer, and many other solar customers in this part of California. The new schedule will make them pay much more for the electricity they draw from the grid in the evening, while paying those customers less for the excess power their solar panels send back to the grid on sunny summer days.

Why Home Solar Panels No Longer Pay in Some States - The New York Times

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But stocks are at record highs, nothing to worry about..

Eurozone economic growth halved in the second quarter, but the 19-nation single currency area moved away from deflation. GDP rose by 0.3% between April and June, in line with expectations but below 0.6% growth in the first quarter. France, the eurozone's second-largest economy, saw no growth after expanding by 0.7% in the first quarter. Eurozone inflation rose to 0.2% in July from 0.1% in June as a result of higher food, alcohol and tobacco prices.

Eurozone GDP growth halves as French economy stalls - BBC News

The US economy grew at a much slower pace than expected in the second quarter and GDP was revised down in the first three months of the year. The world's largest economy grew at an annual rate of 1.2% in the three months to June, far below forecasts of 2.6%, Growth for the first quarter was revised down from 1.1% to 0.8%.

US GDP growth misses forecasts despite spending surge - BBC News

[admin]

Actually, the US figures weren't that bad, from Econbrowser

They key factor in today’s weak numbers was a drawdown of inventories. Real final sales grew at a 2.4% annual rate with half that growth being met by selling out of inventory rather than new production. Jason Furman, Chair of the White House Council of Economic Advisers, emphasizes that inventory changes are the most volatile and least persistent component of GDP growth, and sees a steadier and more reassuring picture if you focus just on real final domestic purchases.

Source: White House Council of Economic Advisers.

[admin]

Theresa May, the revolutionary? 

The new British PM is causing a stir:

Sometimes it’s useful to put symbolic dates on when a different era begins. The end of Thatcherism, it could be argued, came on July 10 in the then PM-candidate speech by Theresa May. It was perhaps appropriate that another woman, a Tory Prime Minister, would be credited with the ending of Thatcherism. The key words, which immediately attracted attention (see also Philip Stevens in today’s “Financial Times”) were not those about  inequality (which has become a common place these  days) but about the changes in the internal structure of capitalism: reintroduction of workers’ and consumers’ representatives on management boards, limits on the executive pay, reduction of job insecurity for the young people and much greater access to top jobs for those coming from less privileged backgrounds.

For the first time since the late 1970s (at the top level of policy-making), we are back to the issues of reforms in the way capitalism functions rather than discussing the ways in which the external environment would be made more market friendly. In essence, this is a confession that “civilizing” capitalism cannot be done only “externally” by relying on the “harmony of private interests” but that the state has a bigger role that goes beyond ensuring the protection of property rights, taxation and redistribution.

globalinequality: The forthcoming changes in capitalism?

We think she's onto something, why?

1. The past four decades have shown wages are stagnating and greatly lagging productivity growth and most of the gains have gone to a small top (the 0.01%)
2. The reasons have less to do with trade, and more to do with the internal workings of capitalism (for instance, the sole pursuit of shareholder value), as May is now acknowledging, a pretty brave stance for a Conservative politician.
3. It is important not to throw the baby with the bathwater and to engage in a dispassionate approach, looking at the facts and the results of different institutional settings around the world how capitalism can work better for more people.

[admin]

We have some scary articles about post-Brexit UK. Not only are they heading towards a recession, it has become painfully clear that the pro-Brexiteers had no plan and have no clue about the implications, and this can turn into a disaster if they don't get their act together.

The UK could end up without any trade regime, not only for trading with the EU, but also with the rest of the world. It's no wonder that a recession is likely with so much uncertainty hanging over economic decisions, and uncertainty which isn't likely to go away anytime soon.