Friday was one of those days where you walk away from the screen for a minute and come back to find a completely different market. All it took was the FBI finding a trove of new Clinton emails, thus breathing new life into the Trump campaign and throwing what was a foregone conclusion back into doubt. Stocks tanked and gold popped, illustrating Wall Street’s preference in the upcoming election.
It will be this way until the vote, especially if polls continue to tighten and the outcome remains uncertain. So there’s no point in obsessing over fundamentals for now. Nothing really will matter until we find out who gets to mess things up going forward. It’s reminiscent of the original Ghost Busters where the demon/god says “Choose the form of your destructor.”
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In other words, it’s a mess either way. Only the details of the mess are in question.
From here on out politics are only relevant at the extremes — major war, the corruption scandal, martial law etc. Short of that, the fiat currency/fractional reserve banking world has such institutional momentum that it really won’t matter whether Trump is picking on Wall Street and building his wall or Clinton is protecting Wall Street and raising taxes. The debt will keep soaring as it has under every president since Reagan and jobs will disappear as machines replace people, thus bringing the end of the current system inexorably closer.
So it’s both dangerous to try to time this kind of uncertainty and, in the end, unnecessary. The crisis is coming and governments (whether left or right, populist or establishment) will respond as they always do, with easier money and more borrowing.
Here are three trends that matter vastly more than the name of the next US president:
(Talk Markets) – While concerns about China’s debt load, capital flows, and depreciating currency have been pushed to the back-burner in recent months, perhaps facilitated by a welcome rebound in global inflation – perceived by markets and global central bankers that monetary policy is finally working – it is worth a quick reminder of how we got here.
First, a quick trip through memory lane to remind us how much has changed in just the past year.
In a note by Morgan Stanley’s Chetan Ahya released on Sunday, the strategist reminds us that a little more than a year ago, the global economy was facing intense disinflationary pressures. Global commodity prices were declining significantly and the slowdown in China and other major commodity-producing EMs had led to some concerns that it could pull developed markets into recession and drag inflation down along with it. At the same time, in China, producer prices fell by almost 6%Y and the regime change in its currency management approach meant that China was no longer absorbing disinflationary pressures from abroad.
And while this seems like a distant memory today, thanks to China which has played a pivotal role in driving the global inflation cycle – this time on the upside – as the cyclical recovery has both lifted China’s own inflation and transmitted it globally, here is how this happened: the recovery in China has been driven by yet another round of debt indulgence. Debt in China has grown by US$4.5 trillion over the past 12 months, by far the highest amount of debt creation globally as compared to US$2.2 trillion in the US, US$870 billion in Japan and US$550 billion in the euro area. Indeed, China on its own has added more debt than the US, Japan and the euro area combined.
While we have shown the IIF’s forecast of Chinese debt countless times in recent months, here it is once again to put China’s unprecedented debt expansion in context:
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