Mean Reversion of Wealth is one of the six structural mega-trends that we have identified. As is pretty obvious when looking at chart 2, wealth creation during the great bull market of 1981-2000 was quite extraordinary and, in our opinion, unlikely to be repeated anytime soon. Wealth simply cannot outgrow GDP indefinitely, as it has done in most years since the early 1980s. It is only a question of time before mean reversion kicks in.
Portugal’s election on 4 October was inconclusive, without any party winning an absolute majority of the votes. The President of the country, a former Prime Minister, allowed his own party, led by incumbent Prime Minister Pedro Passos Coelho to form a new minority government as has been done in the past. However, the way he has gone about doing so has created a controversy, which has made Portugal the new focal point of the still virulent European sovereign debt crisis. While I don’t think this is a coup by any stretch, as some are saying, I do think Portugal has a tough road ahead regarding debt sustainability.
Editor’s note: This was originally published by Absolute Return Partners in late August. So we are a little late in releasing it. Apologies. It is still good reading. The Absolute Return Letter, August/September 2015: Doodles from an eventful summer “There is something deeply troubling when the unthinkable threatens to become routine.” Bank for International Settlements Incidents of the summer 2015 […]
Yesterday I retweeted an interesting tweet by Business Insider’s Henry Blodget which references an article on data compiled by Barclays on profit mean reversion and recession. The gist of the article is that a profits recession generally presages a real recession except perhaps to the degree the profit downturn is caused by the volatile oil sector. While I am not […]
For nearly four years now, Credit Writedowns has been run using a freemium model, with most of the content behind a firewall. But over the past two years, the amount of time I have been able to devote to the blog and newsletter has declined. This week, I have been unable to write an in-depth note on the economy and markets. And for some time now, I have not been able to keep up a regular schedule of posts. As a result, I have decided to end all paid subscriptions and make the Credit Writedowns Pro newsletter free.
These debt-related shocks will occur regularly for many more years, and each shock will advance or retard the rebalancing process so that it affects the way future shocks occur. There are only a few broad paths along which the Chinese economy can rebalance, and if we can get some sense of the China’s institutional constraints and balance sheet structures, we can figure what these paths are and how likely we are to slip from one to another. In order to get Chinas right I would argue that above all we must understand the dynamics of debt, and of balance sheet structures more generally.
By Michael Pettis Last Tuesday the PBoC surprised the markets with a partial deregulation of the currency regime, prompting a great deal of discussion and debate about the value of the RMB. Part of the discussion was informed by a consensus developing in one part of the market that the RMB is no longer undervalued but is in fact overvalued. […]
By Michael Pettis originally written on 31 Jul 2015 I plan to post a new entry very soon but before doing so I wanted to say a few things about the stock markets, which continue to be insane (but not unexpectedly so) and then repost a blog entry that is nearly five years old. By the time I published my […]
This post was originally written for Credit Writedowns Pro on 12 Jun before Greece defaulted on loans to the IMF. The situation in Greece is not about Greece at all. It is about enforcing an economic framework onto all Eurozone countries. And because the policy goal is primarily about enforcing this economic framework everywhere in the eurozone, there is less policy space available […]
There are a lot of competing narratives going around as to why Greece is in such trouble relative to the rest of the eurozone. A lot of this centers on whether Greek fiscal profligacy or poor credit controls by foreign banks was the main cause of the Greek debt crisis. Let me throw my hat into this ring with a few comments. What I say below will generally shade toward the problem being one of fiscal profligacy worsened by an ECB monetary policy that was inappropriate for the eurozone periphery as a whole and Greece in particular.
The existence of capital controls eliminates contagion and makes it possible to bail-in deposits that would normally be considered to have systemic consequences. The more I look at it, the less benign this bailout deal appears. Indeed it looks to me as if it was set up to do considerable damage to the Greek economy. Once this becomes apparent, Greeks are surely likely to change their minds about staying in the Euro.
Success of the German-inspired solution for the latest Greek crisis is far from assured. If it fails, the Eurozone may be changed forever. This column argues that the failure would lead to an outcome that has been favoured for decades by Germany’s Finance Minister, Wolfgang Schäuble. Perhaps the package the Eurozone agreed is just a backdoor way of getting to the ‘variable geometry’ and monetary unification for the core that the Maastricht criteria had failed to achieve.