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Water and mergers and acquisitions

Water and mergers and acquisitions

This is a follow-up on my entry water post from yesterday. The thesis here is that mergers will be a big part of the landscape as companies seek economies of scale and scope or vertically integrate to deliver water to their customers. But before I go into the corporate landscape, let me continue developing some thoughts on why water matters now.

Why should the Trump Administration issue 50-year bonds?

As the Trump economic team comes together, their economic vision is also coming together. In the last post, I laid out some overarching themes I am seeing from them on the hopes that reducing taxes and regulation will increase productive capital formation and long-term economic growth. You can put all of these ideas under the moniker of supply-side economics. I am also seeing a few individual ideas I wouldn’t put under that umbrella including the extension of the maturities of government bond issuance. Here are some thoughts on that issue.

Is the Fed panicked about the downshift in the US economy?

Is the Fed panicked about the downshift in the US economy?

The minutes from the Federal Reserve Board’s last meeting have come out and they are dovish. While on the one hand, we should praise the Fed for showing it is data-dependent as it has professed to be, on the other hand the abrupt change in is somewhat alarming. I would suggest the Fed is not necessarily panicked but it is certainly worried that it tightened into weakness in December and that future data will be much weaker than it previously anticipated. Some more thoughts follow below.

Willem Buiter, monetary dominance and the convergence to zero

Willem Buiter, monetary dominance and the convergence to zero

I have still yet to get my hands on Willem Buiter’s recent research piece about his proposed China-led global recession. However, I have since seen snippets of the piece and have heard what he has to say about it. And frankly, he makes a lot of sense. Let me review the bits I have seen of what he is saying, using my own parlance and analysis. The title says it all about the economic environment and the economic model: disninflationary environment dominated by weak fiscal policy and a monetary offset globally. The outcome, I believe, like Buiter, is likely to be serious economic under-performance.

The strong dollar, the carry trade and market volatility

The strong dollar, the carry trade and market volatility

I have been meaning to write this post for a few days. And as the information comes in from Brazil, from China, from equity markets, it seems all the more compelling that this is indeed an important period in market and economic history. I would say the strong dollar is the genesis of a lot of this stuff and it is the unwind of multiple carry trades that is creating the market volatility. Some thoughts below

The Chinese currency crisis: a mental model on catalysts, contagion and vulnerability

Many markets have now recovered from the initial wave of selling associated with the Chinese mini-devaluation catalyst. This should be expected. Some of these markets will surely continue higher. Nevertheless, the Chinese devaluation still represents an important marker in terms of global economic vulnerability. And so I want to map out a mental model on how a crisis is transmitted and why I believe this is a crisis.

Chinese devaluation crisis has limited US impact so far

Chinese devaluation crisis has limited US impact so far

My base case is that the US stock market correction will not extend to major losses without a U.S.-based economic slowdown. Therefore, as potent as the Chinese devaluation crisis is as a signal for increasing global deflationary pressures, the U.S. should weather this episode until its vulnerable areas like shale oil run into trouble. Earnings growth vulnerability is a downside risk. In the meantime, emerging markets will continue to be impacted negatively via trade flows and commodity prices.

The Chinese currency devaluation is now a crisis

The Chinese currency devaluation is now a crisis

After hard selling into Friday’s close in the U.S. and a global selloff in stocks today, it is clear that the Chinese mini-devaluation has begun a crisis, despite the Yuan appreciating for a seventh day. The mini-devaluation is merely a catalyst for a long overdue correction, But three questions remain. First, will the capital flows out of China force China to let the Yuan slip again? Second, will the downdraft in emerging market and commodity-heavy economies like Canada infect Europe and the United States? And, third will the US Federal Reserve resist rate hikes in the wake of the turmoil? My thoughts on those issues are below.

China’s new currency regime virtually guarantees currency depreciation

China’s new currency regime virtually guarantees currency depreciation

For several months now, I have been hearing stories about the risk of capital flight and capital outflows out of China. At the same time, perhaps as a result of these outflows, traders have recently been trading CNY/USD at the upper end of the 2% band instituted by the People’s Bank of China, suggesting acute renminbi devaluation. Now that the PBoC has decided to institute a new currency regime that takes these market forces into account, a substantial depreciation in the Chinese currency is virtually guaranteed.