Posts tagged China
The case for reading old economists and the elephant in the room in EM equities

I hope you’re enjoying the 2023 Chat-GPT advent calendar even if it is quite a deviation from the content normally posted here. Fret not, I will pepper the flow of advent stories with some economics, and a lookahead to markets next year.

I really enjoyed @EconTalker's conversation with @tylercowen, the founder of the most widely read economics blog out there, reminding us that there is still value in reading the grand old masters of economics. I enjoyed re-reading most of Keynes’ the General Theory for my essay on fiscal policy, and it was also fun to remind myself about Milton Friedman’s permanent-income-hypothesis for the essay on the life cycle hypothesis. But in reality, I fall foul of Tyler’s accusation of an economist who is probably not as well acquainted with the classics as I should be. I have read very little of Smith for example, I find Hayek very difficult to read, and as an economist interested in demographics, I also regret to say that I have only read few parts of Malthus in the primary versions. Fortunately for me and others, Tyler has made his new his new book—"GOAT" of economics—freely available, and I am looking forward to dig in over Christmas.

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Asia, China, International Trade and Economics , US Economy, US politics and societyclaus vistesenChina, Russia, Tyler Cowen, Russ Roberts, Econtalk, economics, economic history
Goldilocks

Someone has to say it, and it might as well be me. Markets have a distinct goldilocks feel about them at the moment, or in the words of the FT’s editors; markets are beginning to eye the “immaculate disinflation”, which is a prerequisite for a soft landing. This is a story about two trends; easing inflation and economies which are, well… neither too hot nor too cold. Soft US and UK inflation reports for the month of June have been key catalysts for the change in mood. Headline CPI inflation in the US fell to a two-year low of 3.0%, with core inflation dropping by 0.5pp, to 4.8%, a 20-month low. In the UK, meanwhile, headline inflation slipped to 7.9%, from 8.7% in May, while core inflation dipped by 0.2pp, to 6.9%. These numbers don’t exactly scream goldilocks, but markets trade at the margin of the economic data; it is the direction of travel that matters.

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China, Economics, Business, and Finance , Fiscal Policy, Global Economy, Markets and Trading, Monetary Policy, US Economy, UKclaus vistesenmarkets, equities, bonds, yield curves, economic growth, inflation, prices, China, US, UK, Europe, Eurozone
China's Population

Last week we learned that China’s population shrunk last year, for the first time in 60 years, by 850K, the net result of 9.6M live births, and 10.4M deaths. It is worth taking these numbers with a pinch of salt. Accurately accounting for some 1.4B people is difficult, especially down to a sub-1M difference between deaths and births. It’s possible that future revisions will show that China’s population has been shrinking since the beginning of the 2020s, or that it won’t start shrinking until 2025 or beyond. What is clear for anyone with even cursory knowledge of Chinese demographics, however, is that this headline was coming sooner rather than later. China’s fertility rate has long since declined below the replacement level, and all-age mortality is now rising as the population ages. But does it matter that China’s population is now shrinking?

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Asia, Demographics, Economic Theory and Acadmics, Emerging economiesclaus vistesenChina, demographics, fertility, mortality, birth rates, birth postponement, ageing populations, ageing, population forecasts, population
The Triumvirate of Doom

It was heartwarming to see equities attempt a rebound from the initial knee-jerk plunge in the wake of yet another consensus-beating U.S. CPI print last week. BofA’s Michael Hartnett called it the ‘bear hug’, noting that the “SPX was up 5% in 5 hours after a hot CPI because it was simply so oversold”. By the close on Friday, however, the hug had turned into a strangulation. The S&P 500 fell 2.4% on the day, finishing the week with a 1.8% loss. It is difficult to see anything but pain in equities as long as the triumvirate of doom—DM core inflation, bond yields and fixed income volatility—are making new highs. My next three charts show that they are doing exactly that. Barring an outlier in the UK September print, my gauge of OECD core inflation rose further at the end of Q3, bond yields are at new highs, and so is the MOVE index.

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Markets and Tradingclaus vistesenequities, bonds, MOVE, volatility, inflation, bond yields, 60/40 portfolio, CPI, China