Tuesday, November 25, 2014

Some financial literacy is a must in todays world

Even in the United States you're affected by what happens in the rest of the world. You need to have a basic amount of financial literacy, not only about what the U.S. economy and the Fed will do, but what happens in Europe, what happens in China, what happens in Japan, what happens in emerging markets impacts the United States through trade channels, commodity channels, financial channels.

So, I think that any intelligent, sophisticated investor has to understand this very complicated, interdependent global economy where no country is an island, not even the United States.

Monday, November 24, 2014

Investors should invest for the long term

I believe investors should invest for the long run, so I don't buy and sell. I usually maintain the classic index of global equities, diversified U.S. and global and emerging markets, and when the risk is larger, I diminish the amount in global equities and put more into liquid assets - but very irregularly.

Thursday, November 20, 2014

Short term risks with long term benefits for investors in China

A rising China is, perhaps, the key center of gravity in developing Asia, which is now the fastest-growing region of the world.

From the perspective of investors, the size and scope of the Chinese economy mean great potential for both risk and opportunity: the risk is more short term as China needs to re-balance its economy and avoid a hard landing; while the opportunity is medium and long term as China will—in a few years—become the largest economy in the world and the largest market. 

Wednesday, November 19, 2014

Why Roubini is bullish the US Dollar

What's going to happen is that these competitive QE wars that are proxies for currency wars are going to lead to the dollar strengthening further and further.

Monday, November 17, 2014

Nouriel Roubini doesnt expect Fed to raise rates soon

Dr Doom thinks the Fed will play it safe with potential rate hikes

Even if growth, inflation and employment data are at the right level to start hiking, the Fed would like to wait a little bit longer just to make sure that if they start hiking with the liftoff, they're not going to abort and go back to zero because otherwise they lose their credibility. There will be a hard landing of the economy. So better be safe rather than sorry.

Why Roubini thinks the other central bank policies could affect US Fed decisions-

Suppose the rest of the world is worse than the Fed expects and suppose the dollar appreciates by another 5 to 7 percent, trade-weighted, at that point the impact on U.S. growth and on U.S. inflation could be worse than the Fed is currently expecting. That could lead the Fed to start later and much more slowly.

Monday, November 10, 2014

Roubini says QE has helped the Rich mostly

Rising inequality is redistributing income to those with a high propensity to save (the rich and corporations), and is exacerbated by capital-intensive, labor-saving innovation. 

This combination of high debt and rising inequality may be the source of the secular stagnation that is making structural reforms more politically difficult to implement. If anything, the rise of nationalistic, populist, and nativist parties in Europe, North America, and Asia is leading to a backlash against free trade and labor migration, which could further weaken global growth. 

Rather than boosting credit to the real economy, unconventional monetary policies have mostly lifted the wealth of the very rich—the main beneficiaries of asset reflation. But now reflation may be creating asset-price bubbles, and the hope that macro-prudential policies will prevent them from bursting is so far just that—a leap of faith. 

Fortunately, rising geopolitical risks—a Middle East on fire, the Russia-Ukraine conflict, Hong Kong’s turmoil, and China’s territorial disputes with its neighbours—together with geo-economic threats from, say, Ebola and global climate change, have not yet led to financial contagion. Nonetheless, they are slowing down capital spending and consumption, given the option value of waiting during uncertain times. 

So the global economy is flying on a single engine, the pilots must navigate menacing storm clouds, and fights are breaking out among the passengers. If only there were emergency crews on the ground.

Thursday, November 6, 2014

Fed must delay Rate hikes according to Roubii

Persistently low oil prices induce a fall in investment in new capacity, further undermining global demand. Meanwhile, market volatility has grown, and a correction is still underway. Bad macro news can be good for markets, because a prompt policy response alone can boost asset prices. But recent bad macro news has been bad for markets, owing to the perception of policy inertia. 

Indeed, the European Central Bank is dithering about how much to expand its balance sheet with purchases of sovereign bonds, while the Bank of Japan only now decided to increase its rate of quantitative easing, given evidence that this year’s consumption-tax increase is impeding growth and that next year’s planned tax increase will weaken it further. 

As for fiscal policy, Germany continues to resist a much-needed stimulus to boost euro zone demand. And Japan seems to be intent on inflicting on itself a second, growth-retarding consumption-tax increase. Furthermore, the Fed has now exited quantitative easing and is showing a willingness to start raising policy rates sooner than markets expected.

If the Fed does not postpone rate increases until the global economic weather clears, it risks an aborted takeoff—the fate of many economies in the last few years. 

Wednesday, November 5, 2014

Nouriel worries about BRIC economies

Major emerging countries are also in trouble. Of the five BRIC's economies (Brazil, Russia, India, China, and South Africa), three (Brazil, Russia, and South Africa) are close to recession. The biggest, China, is in the midst of a structural slowdown that will push its growth rate closer to 5% in the next two years, from above 7% now. 

At the same time, much-touted reforms to rebalance growth from fixed investment to consumption are being postponed until President Xi Jinping consolidates his power. China may avoid a hard landing, but a bumpy and rough one appears likely. The risk of a global crash has been low, because deleveraging has proceeded apace in most advanced economies; the effects of fiscal drag are smaller; monetary policies remain accommodative; and asset reflation has had positive wealth effects. Moreover, many emerging-market countries are still growing robustly, maintain sound macroeconomic policies, and are starting to implement growth-enhancing structural reforms. 

And US growth, currently exceeding potential output, can provide sufficient global lift—at least for now. But serious challenges lie ahead. 

Private and public debts in advanced economies are still high and rising—and are potentially unsustainable, especially in the euro zone and Japan.

Tuesday, November 4, 2014

Roubini compares economy to Jet Plane

The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, only one of its four engines is functioning properly: the Anglosphere (the US and its close cousin, the UK). 

The second engine—the euro zone—has now stalled after an anaemic post-2008 restart. Indeed, Europe is one shock away from outright deflation and another bout of recession. Likewise, the third engine, Japan, is running out of fuel after a year of fiscal and monetary stimulus. And emerging markets (the fourth engine) are slowing sharply as decade-long global tailwinds—rapid Chinese growth, zero policy rates and quantitative easing by the US Federal Reserve, and a commodity super-cycle—become headwinds. 

So the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken US growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the US will be able to decouple from the funk everywhere else, even if domestic demand seems robust. Falling oil prices may provide cheaper energy for manufacturers and households, but they hurt energy exporters and their spending. And, while increased supply—particularly from North American shale resources—has put downward pressure on prices, so has weaker demand in the euro zone, Japan, China, and many emerging markets. 

Monday, November 3, 2014

Large parts of population not benefiting from inflation

I would say the household sector is divided. Wealthy people are doing well. But you have a large number of households that have a very [few] assets so they don’t benefit much from inflation. They have a lot of debt that is being refinanced at low interest rates, but at some point rates are going to go higher, and while the labor market is improving, many people have jobs now that don’t create a lot of wage growth. Wage growth has been anemic. 

So the balance sheets of these households are fragile—lots of debt, very little assets and their P&L in terms of income generation is still sort of mediocre. You add to that $1.3 trillion of student loans, you add to that still a significant level of household debt for those who don’t have many assets, you add to that the sharp increase in sub-prime auto loans and so on, and you have a picture of where maybe the U.S. recovery is going to be more fragile than people make it.