JS Global Macro Notes

Quote from Martinghoul:

I thought I wasn't ever going to hear names "Alan Greenspan" and "Robert Rubin" described as "luminaries" again :). How sorely mistaken I!
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Dunno about Rubin, but I'm sure for Greenspan the word is currently lifted from the promotional at the time !

I'm also certain he would be persona non grata at today's town meetings !
 
Quote from deucy28:

It is wholly plausible, though obviously not a certainty, that growth can return.

I think it would have to move to a flourish and evolve over time into a steady robustness. Leadership where there is supposed to be leaders and an inspired public, uniquely educated, understanding the need to put sacrifices with growth, can sustain it. Slowly rising interest rates and stronger currency can make a cameo appearance, like it, and stay a while.

It is now or never.
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I don't think it is necessarily now or never. That is just too strong a word (never). There is simply too much complexity, too many embedded unknowns, in the big sweeping predictions. America could hypothetically stagnate for another ten years, then go on to dominate for the next 50 years (as George Friedman thinks it will).

As a general rule of thumb I think it is wise to avoid predictions when possible, and to recognize that the scope of accurate prediction making is very limited. Successful macro trading is much less about "knowing" what is going to happen in future, and much more about having a handle on odds, probabilities and scenarios, without growing attached to any single one, and then acting fluidly in the moment as the picture crystallizes in actionable ways.
 
Quote from darkhorse:

I don't think it is necessarily now or never. That is just too strong a word (never). There is simply too much complexity, too many embedded unknowns, in the big sweeping predictions. America could hypothetically stagnate for another ten years, then go on to dominate for the next 50 years (as George Friedman thinks it will).

As a general rule of thumb I think it is wise to avoid predictions when possible, and to recognize that the scope of accurate prediction making is very limited.
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We all understand "tipping points." It's a binary concept. Once the "point" has been reached, the outcome is one way and one way only. No return.

Most of us would not intuitively think of your well described characterization of economics (in the U.S.) in your first few statements as anything that could remotely relate to approaching a tipping point. Too big and too many variables. But would you not agree we were at the tipping point 2007 thru 2008 ? The best documentations of that crisis as I paid attention to those documentations led me to believe we were on the eve of a tipping point.

But that drama is like current predictions of "We are bound to hit a brick wall, and sooner rather than later." My statement is arguably (I admit "arguably") less of a prediction than a statement of our condition." Rather than a tipping point (my "It's now or never.") or acceptance of a "brick wall" that puts us now or in the future in STOP RIGHT NOW FOREVER status, it's meaning to me is that our condition with all of the moving parts you refer to in your first few statements, is like the following analogy. Think of the unsinkable Titanic-- as it was described-- hitting not an iceberg, but something just as serious but with consequences occurring in slow motion. And rather than "sinking," it continues to float, but so low in the water that any swell of larger than normal proportion sweeps massively on to the decks with much of the water staying on board rather than draining off. So the boat floats lower and lower. With no lifeboats left (former passengers and many crewmemebers evacuated with them), the remainder of the boat's population works fervently to pump the water off the ship. Just as it was successful in MOSTLY plugging the big gash in the hull, it is getting much of the swell's potentially swamping water off the boat while others busily tear down staterooms to try to construct replacement lifeboats. And so it continues, in the middle of the ocean. Life goes on, but the quality of living aboard resembles nothing like its former self, and NEVER WILL.

That is what I mean when I have earlier described declining quality of life. Like muddling along as we are now, we acclimate to a new normal of living condition; we have over the last 15 years. The energy boom that is to come (depends on who is president next year as to its scale) can provide relief in the big time scale of history to come, not unlike the very long term secular bear market we are in.....There has been periods of relief....even on the bottom. That is to be expected. In the end, quality of life over decades and in absolute terms, measured decade over decade, probably will not return to cross back over the the Rubicon to a former, higher quality of life. Subjectively, year over year, Americans will adapt to the new normals as they dynamically present themselves over time.
 
Quote from deucy28:


That is what I mean when I have earlier described declining quality of life. Like muddling along as we are now, we acclimate to a new normal of living condition. The energy boom that is to come (depends on who is president next year as to its scale) can provide relief in the big time scale of history to come, not unlike the very long term secular bear market we are in.....There has been periods of relief....even on the bottom. That is to be expected. In the end, quality of life over decades and in absolute terms, measured decade over decade, probably will not return to cross back over the the Rubicon to a former, higher quality of life. Subjectively, year over year, Americans will adapt to the new normals as they dynamically present themselves over time.
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What you characterize could well describe Europe, where levels of youth unemployment and capital flight, along with entrepreneurial and executive talent flight, mean the periphery countries could wind up crippled for generations.

I would not put America in the same "boat," though, because the U.S. has a couple very powerful things going for it:

- a potential game-changing energy boom (as noted)

- strong odds of being the core wealth engine in the next technology boom (if not clean energy as oil prices decline, likely biotech / aging / 21st century medicine related)

- favorable demographics (not ideal, but at least favorable relative to the rest of the world)

- the strongest combination of stable democracy / rule of law institutions and internal coherence (allowing for stabilizing fiscal transfers among various regions)

- agrarian superpower status in a time of increasingly severe food crisis (ramifications of which will last for years and possibly worsen)

- favorable geopolitical profile (ability to project dominance into two oceans)

In short, America still holds the best hand at the poker table... Europe is indeed sick and dying, and China's great rise to prominence may turn out to be an unfunny punchline to a joke in a few years' time - a washout similar to the predicted dominance of the Soviet Union or Japan in the 1980s... it's no guarantee, but sometimes the winners just keep winning.
 
Quote from darkhorse:

I would not put America in the same "boat," though, because the U.S. has a couple very powerful things going for it:
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I slipped some edits in to my last post 15 minutes before your last post.

I loved your thoughtful itemizations. Thank you for that. Some, however, I see as being in decline.

But the list is excellent for just presenting while on the fly; I think more could be added with the leisure of additional time. Had I not timed out in the editing of my post, I would have ended by writing, "Going forward from here, in the best of scenarios I could possibly hope for that is realistic, the mix of Growth and Austerity Measures that are both vital will be net positive and consistently so."
 
Quote from deucy28:


But the list is excellent. Had I not timed out in the editing of my post, I would have ended by writing, "Going forward from here, in the best of scenarios I could possibly hope for that is realistic, the mix of Growth and Austerity Measures that are both vital will be net positive and consistently so."
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Thanks. That was more or less Ray Dalio's view a few months back, re, "beautiful deleveraging:"

http://online.barrons.com/article/S...577390023566415282.html#articleTabs_article=1

A beautiful deleveraging balances the three options. In other words, there is a certain amount of austerity, there is a certain amount of debt restructuring, and there is a certain amount of printing of money. When done in the right mix, it isn't dramatic. It doesn't produce too much deflation or too much depression. There is slow growth, but it is positive slow growth. At the same time, ratios of debt-to-incomes go down. That's a beautiful deleveraging.

We're in a phase now in the U.S. which is very much like the 1933-37 period, in which there is positive growth around a slow-growth trend. The Federal Reserve will do another quantitative easing if the economy turns down again, for the purpose of alleviating debt and putting money into the hands of people.

We will also need fiscal stimulation by the government, which of course, is very classic. Governments have to spend more when sales and tax revenue go down and as unemployment and other social benefits kick in and there is a redistribution of wealth. That's why there is going to be more taxation on the wealthy and more social tension. A deleveraging is not an easy time. But when you are approaching balance again, that's a good thing.
 
"- the strongest combination of stable democracy / rule of law institutions and internal coherence (allowing for stabilizing fiscal transfers among various regions)"

I would actually argue that the US have the highest probability of moving towards an oligarchic fascist state:
1) the legal infrastructure is already in place (Patrioct Act I and II, varius anti - internet/free speach laws, etc etc)
2) the military infrastructure is in place: at the local police levels (mini tanks,all sort of non deadly weapons etc etc) and at the armed forces level (no need for examples here)
3) the social/economic background is there: Supreme court decision about unlimited financial contribution to politicians, extreme income distribution, totally self referencial political class etc etc
4) the historical background is there: the USA is one of the very few (only?) large countries/regions that never had a dictatorship so have no "antibodies" , no older generation that remembers what that means, no teaching in schools of what that really means
5) the economic situation is there: the largest deficit/gdp ratio of any developed country, the largest total debt/gdp of any developed country (maybe except the UK) . These ratios can't be put under control using any fiscal or monetary policy whatsoever so will precipitate the situation sooner or later

and I can go on and on.

Your hope of a potential future boom in energy or technology assumes that the economic and political situation does not degenerate. I am not sure you have spent enough time thinking about this issue, which in my opinion is THE issue. Secular bear markets bring confrontation, isolation, extremism and what we have seen so far (in the USA, but also in Europe) is nothing compared to what happened historically. I am sure I don't need to talk about the events that followed the great depression or the politically motivated terrorism you had in europe in the 70's, with all the global implications (middle east policy change, vietnam failure, but also total neglect of entire cities and regions etc etc etc)
 
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