This Time Is Different (Duh)
Secular stagnation largely rests on two different stories: First, that we will be making fewer babies forever. Second, that those babies will be crazy un-productive and never raise a cybernetic finger: “Output per worker grew last year at its slowest rate since the millennium, with a slowdown evident in all regions, underscoring how the problem of lower productivity growth is now taking on global proportions…Globally, the rate of growth decelerated to 2.1 per cent in 2014, compared with an annual average of 2.6 per cent between 1996 and 2006…The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers around the world.” Also, you should know that number 2 on the Financial Times’ list of five drags on productivity is “The big innovations have already happened.” Which, of course, is always true at all times…the big innovations have already happened. But this will change — will it?! We have just summarized the “debate” on secular stagnation. Meanwhile, George Magnus is connecting the speculative euphoria exhibited by German bunds and Chinese equities: “Rationalised in macroeconomics, this is essentially about ‘secular stagnation’…We should beware this narrative, even if the secular stagnation hypothesis turns out to be right…Any euphoric returns today will be counterbalanced as night follows day…Institutions are still buying European debt on negative yields. Investors who have missed the doubling of the Chinese stock market since mid-2014 wonder if they can afford to stay out. Emerging market currencies are down but asset returns have barely moved despite a steady deterioration in currency reserves, capital flows and growth.” Meanwhile, cheap is like, so 2013: “investors are being dragged kicking and screaming into the stock market because, while valuations are not cheap, there really aren’t any better options,” says money manager. “Higher P/E stocks don’t frighten me…this tends to be the most exciting and rewarding stage of the market anyway,” says fund manager. Meanwhile, Bond Traders Uncover Secret To Rates That Fed Doesn’t Get.
Speaking Of Rewarding Stages Of The Market
How Can I Invest In China? is probably the question you’ll be getting this week (if not already). “A year ago, analysts who cover the 50 largest companies trading in Shanghai and Shenzhen said equities were set to rally 28 percent. Turns out they weren’t anywhere near optimistic enough, as monetary easing and a buying frenzy among Chinese retail investors sent shares surging 111 percent through last week…While regulators have taken steps to weed out speculators, they’ve also sought to expand the role of equity markets in helping companies raise funds as the government reins in credit expansion. Beijing has accelerated reviewing companies’ applications for initial public offerings since April.” Meanwhile, as “the dollar has soared against the currencies of most of its biggest trading partners in the last year, Beijing has largely refused to let the renminbi depreciate against it. At 6.20 to the dollar, it’s less than 1.5% off the record high it posted at the start of last year. As you might expect, tying the renminbi to the dollar has led China’s exporters to lose competitiveness on regional and world markets, particularly against local rivals Korea and Japan.”