copula cowboy

global macro - cross asset vol - lacan - hegel

[Adam Tooze @adam_tooze]

China shock 2.0 and mercantilist-on-mercantilist violence.
A riff on Davos, China, Germany, @Brad_Setser @SanderTordoir and the echoes of history in Dalian/Port Arthur.
https://t.co/Wk7nAAUVgC

[Kieran Goodwin @kieranwgoodwin]

LTV was never a term used in levered finance before the rise of Private Credit.

ABS/CMBS/Securitized market used LTV since credit was backed by hard assets.

To me when company is asset-light and lender uses LTV as a metric, then:

LTV = LENDING TO VIBES

[copula cowboy @always_convex]

@michaelxpettis @LONGCONVEXITY I really don’t understand why are 99% economists not able to get this. Why is mainstream economics stuck in random neo classical models which just don’t hold true… this is fairly intuitive, doesn’t require advanced stochastic modeling and has happened throughout history.

[Michael Pettis @michaelxpettis]

WSJ: "Germany’s famously open economy was its greatest economic asset, delivering almost 20 years of uninterrupted growth and turning it into one of the biggest winners of globalization."

I think I would have framed this differently.

Germany's trade competitiveness for a long time was based on its ability both to suppress household income growth relative to productivity growth (as it did, for example, after the 2003-5 Hartz reforms), and to keep its currency cheap (as it did, for example, through adoption of the euro).

Under our current form of globalization, in other words, we experience an example of the Kalecki paradox, in which wage-suppression policies that allow one country to grow faster than its trade partners are actually bad for overall global growth – to the extent, anyway, that consumer demand drives investment among its trade partners.

In this system, all countries are under pressure to suppress wage growth in order to expand manufacturing and retain manufacturing employment, but the "winner" is the one who is able to do it most effectively.

For many years, when much of China's high saving was directed into domestic investment, Germany was one of the main winners from this system. But as Chinese investment became increasingly unproductive, Beijing began trying to rein in the debt needed to fund so much unproductive investment.

This process, of course, took off after the 2021-22 property crash, and once that happened, Germany's ability to benefit from the Kalecki paradox evaporated, as it quickly became one of the main losers of the system.

The point is that the problem isn't China. The real problem is a system that rewards countries for implementing policies that undermine overall global growth. The good news is that for many years, when Germany was able to exploit the global trade regime, it was also one of the greatest defenders of this system. Now that it is on the losing side, German policymakers are increasingly recognizing how damaging a system it is.

There is nothing new about this. If you read the economic debates between the UK and the US in the 1920s, a period when US productivity soared even as wages remained stagnant, it was the UK that complained about the trade imbalances. The US insisted that its huge trade surplus was simply the consequence of more efficient manufacturing techniques and harder-working people. The US of course abandoned that argument in the 1970s, when it lost its trade surplus.

In the economic debates of the 1980s, it was the US who complained about trade imbalances, and Japan who insisted (what else?) that its huge trade surplus was the result of more efficient manufacturing techniques and harder-working people. No one in Japan makes such a silly claim anymore.

In the 2000s, of course, Germany rather patronizingly explained to the rest of Europe that if only they could become as efficient in manufacturing and as hard-working as the Germans, they too would be in just as good a shape. So much for that claim.

Meanwhile our trading system continues to reward policies that depress global growth by putting downward pressure on wage growth, or that, alternatively, force the world to encourage rapid increases in debt in order to counter the impact of lower wage growth.

That is why the real solution isn't a global alliance against China. While this may help defuse current tensions, it won't change a system that will continue to reward bad behavior – i.e. household income-suppressing policies – by allowing countries to externalize the costs of this bad behavior through large, persistent trade surpluses. And this means that it will continue to support increases in income inequality within countries.
https://t.co/9g6zh3ET99

[Relearning Economics @RelearningEcon]

"Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits."

-Hyman Minsky

[Michael Pettis @michaelxpettis]

Financial Times: "Beijing now sees AI-enabled machines as a way out of the demographic trap. Last year the country installed more industrial robots than the rest of the world put together."

This very interesting FT article claims that because its aging population "is China’s biggest economic headwind" (I am a little skeptical about this claim), and that because its declining population makes a bad debt problem even worse (I agree), Beijing wants to increase worker productivity by investing heavily in automation and robot technology.

This sets off at least three, perhaps unrelated, points. First and most obviously, mainstream economists have long argued that manufacturing jobs are no better than service jobs, and because the former are declining anyway, we should avoid a manufacturing "fetish".

But this might only show just how poorly they understand the economy. It is precisely because manufacturing productivity can rise so rapidly (which also explains most of the decline in manufacturing employment) that countries like the US and the EU should do all they can do encourage domestic manufacturing.

Second, China has among the lowest unit labor costs in the world, i.e. wages are lower relative to productivity than they are in most of its trade partners. It also has a very high underemployment as gig work absorbs a huge number of workers who would otherwise be unemployed. With such low labor costs, you would expect Chinese growth to be very labor intensive at this stage.

But it is instead very capital-intensive, as demonstrated by the extraordinarily high investment share of GDP, and illustrated by the huge push into the labor-saving automation described in this article. This is pretty strong evidence than in China labor may be cheap, but capital is even cheaper.

Third, many analysts worry that automation and robot technology will lead to a rise in unemployment. This is only true, however, if overall demand fails to keep pace with overall supply, in which case production facilities would have to close down and workers fired.

But this may be a misplaced concern. In an economy in which investment growth depends on growth in consumption, overall demand will fail to keep pace with overall supply only if household income fails to keep pace with productivity growth.

This returns us to China's original problem. while Chinese productivity has been rising, especially until the late 2000s and early 2010s, wages haven't kept pace with productivity growth.

So what really matters to overall Chinese and global growth, at least in the medium term, is not the rate at which China automates and expands robot technology, but whether or not wage growth is able to keep pace with the resulting increases in productivity.

Given the extent of unemployment and underemployment in the economy, however, this seems pretty unlikely, at least in the next few years, in which case the impact of automation in Chinese manufacturing is likely to be even bigger domestic imbalances and trade surpluses.

The key, as I see it, is whether China can continue to subsidize the cost of capital to such an extent that, even with very low labor costs Chinese businesses still prefer capital-intensive growth over labor-intensive growth. This in turn probably depends on how much longer Chinese debt can grow faster than China's real debt-servicing capacity. With debt so high and rising so rapidly, I suspect we will only get a few more years of this at best.
https://t.co/Uli4JS7ZKA

[copula cowboy @always_convex]

@BlacklionCTA @Fullcarry The worst predictor of all the time. Always a lagger imo.

[Prof. Steve Keen @ProfSteveKeen]

Oh this is perfect!

[copula cowboy @always_convex]

@bennpeifert Still better than investing in Defense companies perhaps and then claiming that university stands for peace.

[copula cowboy @always_convex]

To human ingenuity, Martian colonies, and aggressively optimistic valuations….

[copula cowboy @always_convex]

@conksresearch What’s the point. Nothing ever happens.

[Zen masters @Zenm001]

The servant is free if he is content.

The free man is a slave if he is greedy.

Imam Al-Shafi

[copula cowboy @always_convex]

@Globalflows How long can this last? In theory this can go on forever. Deficits are self financing. This is rather more subjective now. China needs to sell its involution products - there’s no intention to increase domestic consumption by CCP, so they keep absorbing all those $$ abroad.

[copula cowboy @always_convex]

@ProfSteveKeen I thought the same but systems in the west are more resilient than I ever thought. Demand destruction has mostly happened in poor countries and we don’t get to hear about those nations as much.

[copula cowboy @always_convex]

@Globalflows Fundamentals are most useless for trading. For long term investing maybe ok. I’m surprised so many people on the floor talk more Ankit fundamentals and less about liquidity and funding.

[copula cowboy @always_convex]

@philosophymeme0 Spiral Dynamics equivalent

[Relearning Economics @RelearningEcon]

"Economists have never allowed their analysis to be influenced by psychologists of their time, but have always framed for themselves such assumptions about 'psychical' processes as they have thought it desirable to make."

-Thorstein Veblen