I have finally graduated from Columbia University with a Master of International Affairs, focused on international finance policy. Finals and graduation have consumed my attention for the past few weeks. Now past this busy period, I am set to resume high-frequency blogging and research creation.
Thank you for your continued support,
(Thank you mom and dad for your…
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RCS Investments Global Macro Fund; Aggressive Allocation — April
When I published my outlook at the end of last year, I began a portfolio embracing the biases of the report (see positions on the right).
Below is April’s fact sheet. My macro strategy is strongly outperforming its benchmark (HFRX Macro/CTA) by roughly 4%. The general portfolio is slightly trailing its respective benchmark (70% MSCI All Country World Index/ 30% JPM Global Agg. Bond Index).
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How Do You Say 'Drill, Baby, Drill' in Chinese? -
Beijing’s deployment of its billion-dollar oil rig sends a clear message to Vietnam: We’ll drill where we damn well please.
Can’t wait to get finals and graduation out of the way to really focus on all the ongoing flashpoints!
Putin honors journalists as Ukraine propaganda war heats up -
MOSCOW/KIEV (Reuters) - Four weeks after Russia annexed Crimea to great fanfare, President Vladimir Putin quietly signed a decree honoring more than 300 journalists for their objective coverage of the
Hey all, it’s been a while. Been busy with school given I’m graduating in less than a month. Once graduation passes, there will be much more activity.
Thanks for your support. — Rodrigo
China Court Impounds Japanese Ship in Unprecedented Seizure - Bloomberg
China Threatens South East Asian Nations -
Tensions are rising once again between China and its regional neighbors. With tensions already strained between Japan and China, one might have assumed that Beijing’s leaders would look to avoid stirring up any more tensions. Now, however, Chinese Premier Li Keqiang has warned several countries it is currently in dispute with not to provoke China as The Philippines apparently did with its legal challenge to China’s disputed claims over the South China Seas.
Chinese aggression could spur ASEAN unity
China has one major advantage over its rivals. With the exception of Japan, most of the other nations with territorial disputes with care are smaller ASEAN nations. ASEAN refers to the collective of South East Asian nations and provides a loose regional coordination structure for all member states. So far, China has been very effective in using the divide and conquer strategy to keep ASEAN nations from banding together and presenting a united front to Chinese aggression.
China has thus far looked to resolve issues one-on-one with ASEAN nations. Meanwhile, China has used members of ASEAN not involved in the dispute, such as Cambodia and Laos, to hold up any attempts at unified action within the framework of ASEAN. - (Valuewalk)
APR 10, 2014 - Eurozone outlook brighter on better German forecasts -
BERLIN (AFP) - The outlook for the crisis-battered eurozone brightened Thursday as Germany’s leading economic think tanks raised their growth forecast for Europe’s top economy this year and next year.
Throughout the long crisis, the German economy has managed to escape with only a few bruises.
And now with a tentative recovery in the single currency area as a whole gradually firming and gaining momentum, buoyant domestic demand in Germany should enable Europe’s biggest economy to expand by 1.9 percent in 2014 and then 2.0 percent in 2015, the country’s top four institutes predicted in their spring report.
That would mark a big increase from 0.4 percent in 2013.
The government is pencilling in growth of 1.8 percent for this year, while both the German central bank or Bundesbank and the International Monetary Fund are expecting growth of 1.7 percent.
- ‘Momentum will remain high’ -
"For more than a year now, output has been on the up, employment growth is accelerating and sentiment among consumers and businesses is improving sharply," the institutes wrote.
Nevertheless, the think tanks were critical of new economic policies drawn up by the new left-right coalition government under Chancellor Angela Merkel.
"Economic policy will provide headwind for growth," they complained, describing the decision to lower the retirement age to 63 in certain cases as a "step in the wrong direction."
The introduction of a fixed national minimum wage from 2015 would also “put the brakes on employment growth,” the institutes warned.
Merkel and her conservative CDU-CSU parties reluctantly agreed to a minimum wage of 8.50 euros per hour in order to coax the Social Democrat SPD party into a power-sharing coalition.
The institutes also estimated that the crisis in Ukraine could also have a negative impact on German growth.
Russia is being threatened with economic sanctions in Europe following its annexation of Crimea.
And a drop of around 4.0 percent in Russian gross domestic product (GDP) would shave between 0.1-0.3 percentage point off German growth, the institutes said. - (AFP)
Cheap funding costs a boon for French firms -
(Reuters) - As economic prospects in western Europe improve, French companies whose shares are still reeling from the euro zone debt crisis are enjoying rock-bottom financing costs, a boost to their bottom lines that has yet to be fully reflected in their stock prices.
However, the borrowing binge has left French firms with a hefty debt burden, hovering near record highs just below 70 percent of the country’s GDP, according to the Bank of France data.
Economists warned that this could pose a refinancing challenge several years down the line when interest rates start rising. For the short to medium term, however, the issue is not seen as a risk, as companies take advantage of lower rates to gradually refinance their debt and dramatically lower interest expenses.
Meanwhile cheaper funding costs are already having other effects.
Beyond their positive impact on balance sheets and indirectly on companies’ return on equity, the lower cost of capital has started to fuel corporate activity.
"The very low rates paid by companies is a serious boost for M&A and you already see it in France," said Xavier Lespinas, head of equities at Swiss Life Banque Privee. "This will prompt more and more companies to make bold moves." - (Reuters)
Triggering the Next Stock-Market Rally -
Laurence Fink, chief executive officer of Blackrock Inc., the world’s largest money manager with more than $4 trillion in assets, recently issued a warning to U.S. companies: Stop focusing on short-term returns at the expense of longer-term investments.
“It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.”
Stock buybacks and cash dividends totaled $214.4 billion in the fourth quarter of 2013. That is the highest level since the record high of $233.2 billion in the final quarter of 2007, according to the Wall Street Journal. Compare that to the second quarter of 2009, when buybacks and dividends totaled a mere $71.8 billion.
Buybacks tend to boost per-share earnings as corporate net income is applied to a smaller base of stock outstanding. Higher earnings per share can justify an increased stock price. In an era of low bond yields, dividends are an income stream that also gives the investor potential capital appreciation.
Both of these forms of financial engineering have helped to drive U.S. equity prices higher. However, unless a company wants to go private, it can’t buy back its stock forever. Dividends are limited by a company’s earnings.
Companies only have a finite amount of cash to invest. Whatever gets spent on buybacks and dividends is that much less available to be spent on investments in employees, research and development, and capital expenditure. It’s basic arithmetic.
When will the next round of capital investment begin in earnest? As soon as you figure out the answer to that question, you will have gained significant insight into the direction of the economy as well as the next phase of this stock-market rally. - (Bloomberg)
Latam forecasted to grow 3% this year, but fiscal deterioration is serious -
Reported March 31
The institution however emphasized that the fiscal deterioration of many Latin American countries in recent years has left the region more vulnerable to shocks stemming from the reduction in US stimulus.
It said the rise in foreign currency debt sales by banks and non-financial companies has also left many countries more exposed to shocks this time around than during the 2008 global financial crisis, it referred to as the “Great Recession.”
Still, the regional bank says Latin America is for the most part able to withstand capital fluctuations resulting from the drawback of asset purchases by the US Federal Reserve and slowdown of the Chinese economy.
During the 2008 financial meltdown, the region poured tens of billions of dollars into their economies to bolster activity, shore up employment and help local banks. Since then, many of those countries left the fiscal tap open despite the recovery, raising debt levels and diminishing their fiscal arsenal to battle another round of market turbulence.
“Fiscal balances have continued to deteriorate, and tighter fiscal management and restoring policy buffers remain key policy priorities,” the IADB warned in its report.
Rebuilding fiscal buffers is specially key now that the region’s economy is expected to grow between three and 3.5% in the next two years, at near potential but well below the 5% seen before the 2008 crisis, the IADB said.
For the typical country in the region, overall fiscal balances remain three percentage points of GDP below pre-crisis levels, with only three out of 21 countries improving their fiscal position in 2013 from 2012, the report said.
A clear example of fiscal slippage is Brazil where the country’s primary budget surplus, or excess revenue prior to debt interest payments, has plummeted from 3.11% of GDP in 2011 to 1.9% last year.
That rapid fiscal deterioration and lackluster economic growth prompted Standard & Poor’s to cut Brazil’s debt rating closer to junk territory last Monday.
A recent rise in the issuance of dollar-denominated debt by Latin American banks and companies has also increased vulnerabilities if the region’s currencies depreciate too rapidly, the report warns. - (Mercopress)
Fracking regulation. Via Big Picture Blog.
U.S. warns China not to attempt Crimea-style action in Asia -
By David Brunnstrom WASHINGTON (Reuters) - China should not doubt the U.S. commitment to defend its Asian allies and the prospect of economic retaliation should also discourage Beijing from using force to pursue territorial claims in Asia in the way Russia has in Crimea, a senior U.S. official said on Thursday.
Daniel Russel, President Barack Obama’s diplomatic point man for East Asia, said it was difficult to determine what China’s intentions might be, but Russia’s annexation of Crimea had heightened concerns among U.S. allies in the region about the possibility of China using force to pursue its claims.
Yep saw something along these lines coming. See page 2.
China rules out short-term stimulus despite weak trade figures - FT.com -
China will not resort to short-term stimulus measures in the face of temporary fluctuations in growth, Premier Li Keqiang pledged on Thursday, as monthly trade figures showed fresh signs of stress in the world’s second-largest economy.
Chinese imports and exports in March both contracted compared with a year earlier, adding to concerns about the slowdown in an economy that has been the biggest contributor to global growth since the 2008 financial crisis.
In a speech to a forum on the tropical Chinese island of Hainan, Mr Li acknowledged some of the challenges facing the economy but insisted his government was capable of propping up growth while implementing difficult reforms to put it on a more sustainable base.
“The upturn of the Chinese economy is not yet on a solid footing. Downward pressure still exists and difficulties in some fields must not be underestimated,” Mr Li said. But “there are conditions in place for the Chinese economy to achieve sustained, sound growth”, he added. “We have the capabilities and confidence to keep the economy functioning within the proper range.”
On Thursday, Mr Li said the government’s target of “about” 7.5 per cent GDP growth this year was flexible, and Beijing would not act to pump up growth as long as “there is fairly sufficient employment and no major fluctuations”.
Since taking over the government last year, Mr Li’s administration has downplayed traditional GDP targets, with job creation and reform of China’s growth model at the top of the agenda.
In recent weeks, the government has announced a series of initiatives to boost infrastructure spending to prop up flagging growth but has refrained from the kind of massive stimulus it revealed in the wake of the global financial crisis.
“We will not resort to short-term stimulus policies just because of temporary economic fluctuations and we will pay more attention to sound development in the medium to long run,” Mr Li said on Thursday.
Trade figures released on Thursday showed that Chinese exports fell 6.6 per cent in March from a year earlier, missing forecasts for a 4.9 per cent rise.
Imports fell even further, contracting 11.3 per cent from a year earlier and sending jitters through global equity and commodity markets.
In his speech, Premier Li championed the quick implementation of the Regional Comprehensive Economic Partnership as a way to boost growth in China and the broader region.
The RCEP is intended to create a trade zone extending from New Zealand to India and taking in China, Japan, Korea, Australia and the 10 Association of South East Asian Nation member countries.
Many see it as a competing initiative to the Trans-Pacific Partnership, which is being championed by the US and has effectively excluded China. - (FT)
I certainly hope officials have things under control. You see smoke but they say there is no fire. Perhaps it’s just a barbecue.
China bond auction failure reinforces slowdown concerns - FT.com -
Reported Apr 11
The Chinese government was unable to sell all the bonds offered at an auction on Friday, its first such failure in nearly a year amid concerns about slowing growth in the world’s second-largest economy.
The failed bond auction raises the stakes for Beijing as it tries to rein in debt levels, illustrating that even the state will have to pay a higher cost for funding as banks focus more on investment risks and demand improved yields.
Traders said there was strong appetite for the government bond but only at rates above what the finance ministry was willing to pay to borrow money.
The bond failure followed inflation data that showed prices fell in China last month, reinforcing the picture of a sluggish economy weighed down in part by government efforts to squeeze leverage out of the financial system.
Weak trade figures and industrial data, junk bond defaults and big declines in property sales have also added to a disappointing first quarter for China.
Analysts have rushed to downgrade their forecasts for Chinese growth and predict that the economy will expand 7.4 per cent this year, its softest in more than two decades.
The downturn has fuelled expectations that the government will prop up growth, but Li Keqiang, the premier, on Thursday rebuffed calls for a stimulus. “We have the capabilities and the confidence to keep the economy functioning within a proper range,” he said.
But some analysts believe the government runs a risk of being too slow to counter the deterioration of China’s growth prospects.
“It’s high time for the government to ease fiscal and monetary policy. I wouldn’t think of it as a policy stimulus. Policy has been too tight since last year,” said Shen Jianguang, an analyst with Mizuho Securities.
Last year’s failure was a precursor to a cash crunch that roiled global markets when Chinese money market rates spiked to double-digits.
Bond traders said the situation was different this time, with liquidity conditions healthier and the central bank determined to avoid a repeat of the cash crunch. But with market rates climbing in recent weeks and traders expecting the tightening to continue, banks demanded a higher yield from the finance ministry.
“Rates have to stay relatively high to force deleveraging. Yields should be higher,” said a trader with a bank in Shanghai. “Everyone is suffering from the deleveraging process, even the finance ministry.”
Debt in China has risen to about 220 per cent of gross domestic product, compared with 130 per cent in 2008. The International Monetary Fund and global rating agencies have said such a rapid increase in debt can endanger a country’s financial stability.
Since the middle of last year, the government has taken increasingly aggressive steps to slow the build-up of debt, making it harder for banks to obtain cheap financing and clamping down on shadow banking activity. But these tightening measures have also taken a toll on growth, as highlighted by the subdued inflation.
Looking at price figures for the first quarter as a whole, the weakness is apparent. The consumer price index rose an average of just 2.3 per cent in the first quarter compared with the same period last year. That is down from 2.9 per cent in the final quarter of 2013 and it is also well below the government’s target of 3.5 per cent inflation this year.
For industrial companies, the trend is even grimmer. Prices of goods as they leave their factory gates fell an average of 2 per cent in the first quarter from a year earlier. Although producers have faced deflation for 25 months, the situation had previously looked to be improving with declines narrowing at the end of last year.
“These downward pressures are particularly pronounced in the sphere of heavy industry, which is both most exposed to lower raw commodity prices and also overexposed to overcapacity issues,” said Louis Kuijs, an economist with RBS.
The weak inflation data weighed heavily on Chinese markets on Friday. Shares in Chinese companies listed in Hong Kong fell 1.85 per cent, underperforming the wider market, which was down 0.8 per cent. - (FT)
Household balance sheets remain quite weak.
— (This statistic is horrifying — PragCap)