Is loan growth in China slowing?

The correct way to look at the causes of trade imbalances, in my opinion, is to look at policies that force up or down the savings rate, or the consumption rate (which is more or less the same thing since total savings is simply total production minus total consumption).

In that sense anything that reduces consumption and increases production forces up the savings rate, and unless there is an equivalent increase in investment, it also forces up the trade surplus. Undervalued currencies (like repressed interest rates or low wage growth relative to productivity growth) are a kind of tax on households and so reduce consumption, and they are a subsidy for manufacturers and so increase production. This is what forces up the savings rate and so forces up the trade surplus. If China were to raise the value of the RMB and simultaneously lower real interest rates, which is has done in the past year, you could have the seeming paradox of a rising RMB and even greater RMB undervaluation

Stocks are not cheap

If you look at U.S. equity valuations based on value metrics like the Shiller P/E, stocks are rather expensive right now. Because many factors within an individual business cycle are mean-reverting, to the degree one wants to conduct meaningful asset allocation, one must capture the mean reversion effect for the overall market. Vitaliy Katsenelson has done this analysis and found the near record and mean-reverting profit margins for U.S. firms make U.S. equities overvalued

QE and the term structure of rates

By Warren Mosler (as posted on the 10th) Also see other similar arguments from Credit Writedowns’ on how quantitative easing really works. Background information first, answer later- The Fed sets the fed funds target at their regular meetings, and lets the market then determine the term structure of rates. That term structure of rates is

Chart of the Day: U.S. Real Wages

This chart was put together by David Rosenberg of Gluskin Sheff. It shows that wage growth in the U.S. is not keeping pace with inflation. For the statistical recovery to continue sustainably, we will need to either see this trend reversed. Alternatively we could see an increase in aggregate debt levels or a disproportionate increase

China raises reserve requirements, more to come

This morning the Chinese central bank lifted the reserve requirement for banks another 50 basis points to a record 20% in order to curb speculation. The Chinese have been forced to tighten monetary policy due to inflation concerns and growing signs of extreme levels of commodity speculation.  Last month I posted a video showing a

Random Shots – Return of the Deflation Trade?

By Claus Vistesen I recently asked my readers whether the global economy is in for inflation, deflation, or stagflation. Given that it may well be all three at different points in time, it seems as if recent market action suggests that we should be looking at the d-word. QE1 + QE2 +…+QEn = Deflation? Even

Some Thoughts On Brazil

By Win Thin Local Brazil analysts are saying that new measures to curb currency appreciation are basically ready to go. Finance Minister Mantega has reportedly not decided yet if he is going to release details today or not, and that he is working closely with central bank chief Tombini to tailor the package. According to

Chinese bill auction suggests another rate hike coming

China threw in a surprise trade deficit number this past month. However, It looks to be a one off. UBS’ Andy Lees in London explains: The February trade numbers slipped to a deficit of USD7.3bn. The number is usually volatile at this time of the year due to the timing of the Chinese New Year

Egypt Vulnerabilities Rising As Reserves Plummet and Inflation Takes Flight

Egypt reserves for February were reported today, and fell almost 5% ($1.7 bln) from January to $33.3 bln. This follows a $1 bln decline in January, and the stock market hasn’t even reopened yet. While officials are likely very concerned about massive foreign outflows when the market reopens (no set date currently after numerous cancellations), Egypt risks making things worse with further delays

Korean Rate Hike Needed As Inflation Accelerates

By Win Thin Korea February inflation data came in much higher than expected, and supports our view that a rate hike on March 10 is a done deal. The central bank kept rates steady February 11 after a 4-2 vote in favor of a 25 bp rate hike on January 13. Inflation continues to rise

From Dublin to Tripoli

The Absolute Return Letter, March 2011 By Niels Jensen “Experience is the name everyone gives to their mistakes” Oscar Wilde A remarkable month Two remarkable events unfolded during the month of February. One cleared the front pages all over the world. The other one barely got a mention – outside of its home country that

Manufacturing still firing on all cylinders

The February 2011 Manufacturing ISM Report On Business came out today confirming the strong manufacturing reading we got yesterday from the Chicago PMI. The National PMI came in at 61.4%, ahead of consensus expectations for 60.5% and up from 60.8%. These are good numbers. In fact, the numbers you want to see going up like