Shares | My Journey

2019-03-12

Bonds, Foreign exchange, Investments, Shares

Currency

When 2 countries are in war, its damage takes place in proximity. Similar thing is happening in recent US China trade negotiation. It should use proximity to measure how much each of them can afford to suffer more. We do know, human in war, none of them, actually wants to suffer much or having any destruction. I would say today issue is NOT about trade war but economy negotiation in which the trade is only the proximity. Money and currency would be ammunition and trade will be its proximity. In currency war, money is the ammunition and currency would be its proximity.

*USD M0*
*in my theory, it’s a binary form, normalization will not be able to return this back normal*

Let me show you. We used to hear trade in many obsolete economy theory. It sounds big, trades between US and China is 200B$ and growing. However China grew GDP from 2.5T to 8T in 4 years, that made this number small. Let alone trillions of debt created within few years inside US. Fed used to inject hundreds of B every year during QEs, that makes this trade number smaller. Do we believe recent trade deal is about tariff? I don’t. Indeed its tariff is only about 25% AND most importantly, it will not stop consumer from buying and government won’t allow negative effect or inflation number in consumer. In this intertwined global trades, consumers will not have much choice. Trade volume is just a proximity. There’s a larger deal behind, in value of hundred of trillions and recently is asking to have a STABLE YUAN. Growing trades simply can’t follow human created growth of money, shown in binary form (exponential is not enough) of money growth above. Japan with its aging economy, will not be able to keep momentum of economy velocity, without using money and currency.

One that may support my argument is to look into Australia. Australia currently records huge trade surplus against China and US records huge trade deficit, also against China. In reality, AUDUSD is going lower with RBA is now considering lowering rate, same like in Europe, TLTRO (Targeted Long Term Refinancing Operations). Trade and tariff issue is currently much lower and seems to have less correlation to what I believe more appropriate issue, money and currency.

Australia Trade Surplus Largest in 2 Years

captain marvel: higher, further, faster, binary

About normalization, I doubt it’s working well. Fed Excess Reserve was able to reduce from 2015 balance sheet overshoot but do we think Fed is able to reduce more? I am not convinced, and I believe many are not. Previous additional 1T$ excess increase from 2013 to 2015 is just an overshoot and today is only merely back to it. We also believe that rate normally should never come back to 10 years ago. My simple math thinks 1.4T$ is the amount Fed excess reserve has to keep in Fed or somewhere else. I don’t believe it can go much lower, let alone zero. It’s the end of the game.

I’m not worrying much about recent strength of USD, it’s just a currency. As long as all market participants commit to keep growth in check via currency depreciation, voila, I think we have a solution. Is that simple? Yes, what else? It just needs to negotiate interests and make a deal. If a society is all doing a robbery, the robbery becomes a norm. If human is a carnivore, carnivore diet becomes a norm.

There’s an interview with Yellen, former Federal Reserve chairman, about currency. I would have to argue many of her arguments. In today’s world, USD is still the most prominent currency and it’s still the largest and one of strongest. Fed received complaints from other countries when they did too much easing (2009-2014) and too much tightening (2015-2018). She also argued this local policy shouldn’t be considered as currency manipulation. It seems to be contradicting and doesn’t put her feet into others. China was and is still smaller than US. Discussed in my previous article, during QEs, none in this world could afford to have stronger currency, therefore China has to follow suit and have no choice. It drove local property appreciation in many places. Since it’s a smaller country with big GDP growth that time, China has to export inflation to somewhere else, to avoid local economy from overheating. China has too many people and it’s much more sensitive to inflation, compared to developed countries.

It raised Belt and Road Initiative (BRI). There are many arguments it could lead to debt trap. It is possible, but I think it’s not the main issue. The way we could make difference between rich and poor today is access to finance. Warren Buffet on his latest interview still thinks the gap will keep going larger and many of economists and governments do. Engaging more number to strengthen wealth of a poor doesn’t make the poor a manipulator. It works though in a crowdfunding systems. With a lot of economy (mainly neighbors) benefits to China, this BRI will raise power of other countries and then tightened global credit back to China. Simply put, US and USD dominance is now much lower than before because other countries are now much richer and it will be hard to take down China without taking down the rest of the world. It’s been seen since October 2018, US cycle momentum is now being dragged down by global economy down turn. I believe the downturn was due to damage done on medium rate due to previous massive QEs and it needs time to heal. I think it’s not a complicated thing and I strongly believe human can find a deal.

Xi acknowledged that everyone will be in more pain in our near future. Literally it doesn’t only mean to Chinese, but to human, especially to smaller who has less access to finance. Access to finance will be much harder with increasing rate or when world is going to normal, but it’s much easier when world was sick or the richest, US, was sick. We acknowledged, between 2009 to today was one in life time opportunity for many to go rich and HNWI (High Net Worth Individual) number explodes. Luckily, many countries had enjoyed BRI to ride Fed QEs and now they are much richer and they just need to spend wisely. Those countries which received access to finance during QEs through BRI should be thankful and it’s now up to them to grow their wealth wisely.

I don’t believe BRI debt propaganda is the most important. Ask big players like Italy, German and surrounding area, where many negative yields are running around, they do love it. They are not small countries and clever with economics than average human. Once in our life time, we might have an opportunity to grow rich faster (higher velocity) than the richest, in a binary form. After that it’s up to us on how to manage the wealth, created from increasing debt, whether we will fall down into unmanageable debt or continue to prosper.

It takes 2 to tango a stable currency, a binary, from 0 to 1

Could the binary save the end of game?

It’s my own opinion and not in any case of financial advise.

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2019-02-15

Bonds, Foreign exchange, Investments, Property, Shares, Uncategorized

Pinocchio

“World without money, there is no economy, no economist.”

I’m still a fan of inflation since 2015 and I will keep my view intact. Please show me evidence that recent effort of normalization is working beautifully? It didn’t, it doesn’t. Recent bloomberg article shows a world awash with $8.6 trillion in negative-yielding debt, is still easily flipped when central bank blinks. The number is staggering, enough tail-wind.

Since Federal Reserve rapidly increased rate, USD was getting stronger than ever. PBOC at same time was tightening and China economy is slowing down, we can ensure PBOC is injecting big amount of liquidity since 2015 and for sure is growing faster than previous decades. However, is China the greatest easing after all TODAY? Bloomberg recently reports China injects huge amount of money, indeed USD is still weaken against CNY. Is it enough to raise our eyebrows?

People may question 2 policies that may seem to contradict to each other. History shows that financial navigation/auto-pilot always needs 2 ‘contradicting’ policies. After crisis, they may push long term and raise short term bank reserve rate, a different time frame. Same like driving, policies need gas and break, to better control market to their path.

Trump tax cut injection and deficit in 2018 is also greatest in history. At the same time, asset under Federal Reserve balance is starting to mature their belly since 2015. Once matured, the principal is transferred back to treasury. It’s treasury, who is now issuing more debt to roll them over. It’s Trump. It’s just unfortunate that recently Trump doesn’t have much support from Democrat (politics in regard to next election), already shown in a small thing like border wall. Both are still stubbornly enough to make a compromise, to inflate the world, to keep modern economy alive!

Pinocchio: I can move! I can talk! I can walk. I’m alive!

If China manipulates currency, why USDCNY is unable to break 7.0 during USD supremacy era? If Fed Balance sheet was greater than in 2008, why USDCNY fails to break 7.0 with PBOC injecting money bigger than ever. An argument may say PBOC is manipulating exchange rate. Question to this argument, can we manipulate currency in past 2 decades? Does this argument think that global market (intertwined currency) is smaller than PBOC? It doesn’t make sense. China is still second largest and itself is not big enough to put world under their knees.

Everytime USDCNY is back to what it WAS in 2008 around 7.0, with China and world injecting more than ever in history, Wall Street is still loosing ground, seen in Q4 2018. USD was too strong, causing Wall Street to ask for help. 1y bond is recently flashing inversion alert, everytime USD is too strong. It shows that if USD is too strong, financial suffers. I still think that if this burden is not cleared yet, probably with some correction next year, financial and most likely property issue may not get cleared/perform yet.

Global growth is also unable to handle strong USD and oil was crashing. Everything is now going well AFTER Federal Reserve blinks to the market and not to their own numbers. It follows by many other central banks. Australia is also considering cutting rate and AUD was down. Typical currency war is still here today.

Since human is greedy and hunger of money, USD shouldn’t be allowed from going too strong, that what Wall Street is. World shouldn’t stop issuing more easing. China shouldn’t stop injecting liquidity, or else they will see all of those printed money since 2015 goes waste to drain. At the end, there must be inflation rather than slow down, to support my inflation theory since 2014/2015. Isn’t everyone working to push weak global economy growth UP? It’s not without risk that global slowdown could create next global crisis. However we are human who created the systems, can decide when is the next crisis. It’s easy for each of us to keep party rolling, very easy, since we all have common interest, MONEY. However it’s strange that it’s just too hard to make compromise between US vs China and between Trump vs Democrat, INTEREST.

Before October 2018, we used to hear a beautiful world normalization, and stronger US economy. Few months before October, I was arguing that in this intertwined economy, this hegemony shouldn’t last long. US is starting to slow down together with the global world slow down. It actually raises a question. Is US really the strongest economy in the world at the moment? If it’s, please explain to me USDCNY in past 2 decades and why it’s too hard to pass through 7.0?

I’m not saying that PBOC is cleaner. They both have their own agenda and their own defense. PBOC numbers also have a lot of irregularities. Communism is a living creature which can provide financial stability in expense of social pains. We are just a tiny molecule here who is just trying to study their behavior in seeking the truth. Indeed today, we are questioning central bank in-dependency from fiscal policy. My deep learning sometimes gets confused with too many contradicting signals. It definitely needs to weight down the contradictions.

Regardless of those human disagreements, let’s use numbers because that matters most here. Let’s look back in year 2000 when a dot com bubble burst which marked a start of IT evolution, the FANG. PBOC couldn’t hold USDCNY peg at 8.27 and greed had never been higher until year 2007 when PBOC tried again to hold USDCNY at 6.82. For sure PBOC (and no other central banks) could no longer again peg USDCNY at 6.82 when Fed conducted massive QEs. During that time in 2007, China GDP was still far very small compared to US GDP. As a simple rule, smaller GDP shouldn’t be able to strengthen their currency higher than higher GDP. It’s still raising a question, if China GDP was lower that time, why CNYUSD is getting stronger? Many argues trade surplus but why not considering account deficit? The issue is, trade surplus keeps going higher while account deficit can’t go lower. It causes the imbalance.

Between 2017 and October 2018, USD is loosing value much faster despite spectacular USD economy performance and USD divergence. Indeed world condemned some country and actually the rest of the world, to continue conducting biggest currency manipulation. USD has been loosing value in past 2 decades until today at same pace, despite spectacular USD divergence and beautiful normalization story. The intertwined credit of today is much higher than world trade balance between US and China. The value added product made in China is still far less than created trade account balance/deficit. The fact is Wall Street was unable to continue rally when USD was going stronger in October 2018.

Let’s read to this financial article from The New York Times. From all of its long story, I only can find that the writer argues from 2000 to 2014, China bought dollar and add 4T$ to reserve. None in this world could stand of not printing money when Fed did incredible ballooning 300% balance with QEs between 2009 to 2014. None can be crazier than issuing greatest CDS (Credit Default Swap) between 2000 and 2008. A simple theory is, whoever did first is always the biggest. Not just China, most countries in this world followed Fed printing during QEs, 2009 to 2014. Emerging countries (Asia, India, Venezuela, etc) are even worst than China and surprisingly they are not currency manipulators. They later got trouble with inflation, and not China. China is still smaller. China can’t just add 4T$ without US doing it first. It doesn’t support currency weakening effort. The writer then argues that in 2015, Chinese government kept pegged renmimbi to the dollar. Does the writer know that PBOC starts massive easing, injecting money greatest in their history and keep cutting rate since 2015 until today? At same time in 2015, Fed keeps raising rate faster than ever? It doesn’t make sense PBOC to keep renmimbi pegged against dollar to stop it FROM strengthening. It’s indeed should be an effort to stop it FROM weakening because inflation is very SENSITIVE to their 3 billion of society. This is the main reason of not allowing currency from weakening. Eventhough that massive efforts, China still fails to fight currency war from USD. At same time Wall Street is also part of symbiosis that requires China to help racing money value destruction.

Pinocchio, Pinocchio, please tell me the real truth!?

China for sure can’t compete the pace of information transmission. There should have been decades of efforts to make financial benefit. Don’t be surprised that most normal economist relying on these Pinocchio economy numbers usually fails. It’s no surprise that in decades China is building information wall. No chance to break out world dominance, no chance for HuaWei. It could be a no brain to collect few depressed 5G provider in the wake up of world monopoly, just some small side dish to inflation bet.

It doesn’t matter how hard number can explain, it won’t even be able to satisfy every part of human INTEREST. When I expand my deep learning to longer view or decades of numbers, it seems to be less prone from the irregularities because as the fairy said, “a lie keeps growing and growing until it’s as clear as the nose on your face.” At the end, Pinocchio said “I’d rather stay smart than be an actor“.

It’s my own opinion and not in any case of financial advice.

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2018-11-07

Bonds, Foreign exchange, Investments, Shares, Uncategorized

Wealth transfer using r-star by raising Π-star

Is the bubble going to pop up soon?

Are the funds/banks not healthy?

How is next year inflation?

How’s the wealth is being transferred?

Will we see any bankruptcy next year?

I’m still more optimistic than average economists but we should aware there will be rocky roads ahead, just like before easing, a normal higher volatility. Based on arguments above, I reiterate my views few months ago. Last October horror wasn’t able to derail my views.

I have not seen any major recession risk. Federal Reserve still holds large amount of reserve and public debt is increasing faster than ever. People may wonder why gold is not yet performing. It’s due to strong US divergence.
Democrat is expected to prefer infrastructure bill while republican is expected to prefer tax cut. Put them in balance in midterm will do both.
Normal higher volatility is back to a decade ago before easing put in place. Asset is expected to perform normally within higher rate.
I would expect more debt, inflation and higher volatility that will support inflation sensitive play.
More public debt auctions should be new normal and inflation will always be in focus. Economy will service more debt.
Only selected asset will perform.
Big players as usual will always try to hide inflation from hitting themselves, but it will pop up in this and there. R-star is expected to rise in stronger countries. Lower or negative R-star will continue to haunt emerging.

⁹After they had heard the king, they went on their way, and the star they had seen when it rose went ahead of them until it stopped over the place where the child was. Merry Christmas! It’s true past performance never dictates future return. However wealth transfer can dictates future return better because market participants have less choice. It’s just my own opinion and not in any chance of financial advise.]]>

Tagged inflation, return, star, unemployment, wealth

2018-08-29

Investments, Shares

Will economy be back normal?

The world has been controlled by devil agreement with money and debt. Simply if you want to get rich, service more debt. There is no exit to exponential growth. Every year, no country is able to declare negative GDP growth. No question that money supply has to go exponential but is productivity doing same?

US enjoys divergence of the only country that can “normally” increase rate. It’s arguable whether raising rate in this most liquid era is supposed to reduce inflation or would it trigger more inflation? I’d think the second. If rate has to increase, it may show some sign of ‘inflation’ or an effort to push cost higher, regardless whether it’s artificial or not.

There’s a question whether flattened yield is a sign of recession like in past 60 years. To different to previous ones, there is a huge derivative position that could suppress rate of 10y. Other than that, Federal Reserve is still having 1.8T excess in balance sheet that can be orchestrated on USD and longer maturity bonds to maintain yield curve from being inverted in real. Currently I don’t think we should be afraid of recession as long as policy makers keep on their normalization path. They still have enough ‘tools’ to keep the party going.

Recent trade war is merely a way to push others to change their policy rather than to bring down global economy growth. Higher wage growth which can support fundamental of higher rate is not yet seen. It’s no surprise that there is still in huge difference in productivity between US and China to push wage growth higher. I would think trade war is a way to support inflation, therefore the excess balance can last longer.

For decades, there was huge amount of commodity funds created within developed countries. However they have not been performing well since the eclipse of 2008 spike. Indeed petro-yuan is now challenging superiority of the master, America and his allies. The global consumption was driven mainly in developed countries and now being challenged with raising of huge emerging middle class consumption. Have a look consumerism in Asia, China and India or in dramatic way, watch millions of “crazy rich Asians and Indians”. Their raising middle class can easily exceed America consumption soon and the world could be challenged again. The amount of consumption growth in US had been slow down while old generation huge saving in China for example is now inheriting their saving and leverage them to their children. When we enjoy good life, we take advantage of cheap labor, and so is happening in Iran. Iran is a country who can sell oil cheaper to China, India and Europe. When China contracts to survive on inflation threat, Iran supply is becoming prominent to billions of poor people in China, India and as well for Europe. However it causes economy issue to UAE who have been enjoying long decades of good life and oil prosperity. Even when foreigners are leaving the UAE country, due to slow down of economy, existing citizen is still unwilling to go back to hard working. In order to satisfy human basic instinct of not working hard, it may need a cost of war with Iran and asking higher price of oil. Any effort and shift of this have caused volatility in commodity market which is unfortunately has been long tightened well in petro-dollar. Shouldn’t buyer be the king? Since the eclipse of 2008, commodity funds shift their crown to new leaders. Manufacturing has been shifting to cheap labor and will always be. The material to manufacture is oil and commodity. Since massive boom of manufacturers middle class, it’s no longer end of line or consumer who decides the material, it’s the manufacturer who buys the material decides the fate of oil. However it’s not easy to replace dominance of developed countries, simply due to amount of money held with them is still too big and none is able to challenge their over 220 T$ of shadow banking backbone. Just like casino, anytime any new player increases their money capacity, the casino has to increase capacity much bigger, just to survive. Xi has promised more open world to their commodity space in effort to allow global inflation, but again everyone is cautious to put their money in other backyard since there is a lot of uncertainty with communism. It should be the main reason of global weak wage growth where the only way to increase wage in my opinion is to increase inflation expectation and reduce inflation threat to global economy. Where else we can look the threat, no other than the excess balance sheet of Federal Reserve itself. The economy book has been long written based on America history and culture in which there was no significant competition from others. I’m still amazed on how people are, as usual, brainwashed by media on their view on China with trade war of tis tat. If we put ourselves on their feet, we are same greedy human who is basically lazy and being carnivore. A lot of their old generation are working for life and death and those money is now going to their children who are now creating millions of new middle class of consumptive generation while developed countries have been taking advantage of debt and inflation to service their bigger and bigger deficit. I’m not saying trade war is bad nor see end of deficit, I see it as a good negotiation of both same human race. I believe the end result of the trade war and any like this, should come back to basic instinct of human, debt and inflation, once and for all. If China and other countries could have less inflation threats, I believe we will see a lot of smiley faces, and me, the end of my great inflation expectation bubble burst. In summary, I haven’t seen economy is working normally after one decade of easing and 3 years of normalization and I doubt it will. It is still money who decides the economy and no longer university economy theories. It’s true that past performance never dictates future return but money always does. Hedge funds nowadays are so dumb, that their job is only to make sure the policy makers are still on their money side, else they will dump position, regardless of theories or even facts. Economist or big funds will keep brainwashing media with negative idea, to help policy makers have enough professional economy research to keep money life support flowing. It’s not money allocation based on economy numbers, but the other way around, since most of economy numbers are now artificial/man-made anyway. One day I may publish my own decades of experience of what i called money theory, dedicated to my beloved daughter who is still 3 years old. She may then rewrite all outdated economy theories. It’s merely my 3 cents and not in any case of financial advice.]]>

Tagged excess, inflation, normalization, rate

No Financial Advise

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