That Escalated Quickly

1+ I published this note today on the website, and it’s making a bi of a splash. We&
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4 months ago

Since you (sort of) asked, here is how I think this plays out in markets. We’re currently, as you’ve described, in the middle of this Vietnam War ‘number’ counting game as part of the ‘communication strategy’. In the short term in China, we’ve seen capital controls, short selling bans, liquidity injections via repos, and State narratives attempting to perpetuate the idea that ‘all is almost well, soon we’ll be back to work’. The Chinese economy has been bumbling along, and the Shanghai composite has returned negative gains over 5 and 3 year periods. Industrial/manufacturing production has zigged and zagged the past 5 years, as has Services PMI, but growth is not showing any positive inflection. My point – purely financial stimulation has lost its ability to engineer the Chinese economy and markets out of its 5 year doldrum. Once (if) this virus is contained on mainland China, and ‘all clear’ is announced, I expect a massive attempt at fiscal economic stimulus. This could make the 2010 initiative look like the kid brother of what is likely to come. Remember this quote from 2010: “World Bank President Robert Zoellick declared that he was ‘delighted’ and believed that China was ‘well positioned given its current account surplus and budget position to have fiscal expansion.'[8] News of the announcement of the stimulus package sent markets up across the world.” Yes, the Chinese economy has changed since 2010, with a focus on growth in services and away from industrial production. But this is the… Read more »

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