Comment of the Day
Big Picture Long-Term Video July 29th 2022
A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area.
Europe's Stellar Growth Is Already Unraveling as Inflation Jumps
This article from Bloomberg may be of interest to subscribers. Here is a section:
Europe’s bumper economic growth is already buckling under the weight of record-breaking inflation and the increasing likelihood of a Russian energy cutoff.
Second-quarter output in the 19-member euro zone surged by more than three times the amount analysts expected, with Italy, Spain and France topping estimates by some distance.
But Friday’s data also underlined the challenges: There were contractions for Portugal and the Baltic region, while Germany, the continent’s No. 1 economy, unexpectedly stagnated and may be headed for a recession. Euro-area consumer prices hit a fresh all-time high.
My view - Surging energy costs cause recessions because they are a tax on consumption. That’s particularly relevant for Europe, where dependence on Russian gas is a major medium-term issue. The continued uncertainty about Chinese demand for European exports is an additional challenge for the region and suggests the risk of a deep recession is the base case.
Truss Sets 2.5% Growth Target for UK, Vows to Review BOE Mandate
This article from Bloomberg may be of interest to subscribers. Here is a section:
Speaking to Conservative Home, she said the mandate “was set in 1997 in completely different times, and one of the issues round controlling inflation is around monetary policy, and that’s not just about interest rates, it’s also about quantitative easing.”
“I haven’t made any decisions … but I think it’s important that we review our monetary policy settings and make sure it is delivering for the times we’re in now. And of course inflation is a major concern for people.”
She stressed that a mandate review would not impinge on the BOE’s independence to set policy. The BOE itself was planning to look at options in early 2020 before the pandemic, and both the US Federal reserve and the European Central Bank made remit changes in 2020.
“Are we really saying that the mandate Gordon Brown set in 1997 is fixed in stone forever? I mean that seems an extraordinary claim,” Truss said.
“It’s always been the case that the Bank of England operate within the mandate set by the chancellor. And what I’m saying is that should be reviewed.”
My view - The most basic lesson successful politicians learn is to give the people what they want. That generally means more perks, spending and social programs. That’s especially true when inflationary pressures are high, and many people are worried about paying for basic necessities. Rishi Sunak is behind in the race for Prime Minister, and it is no coincidence he is running on a program aimed at responsible spending. Liz Truss has the benefit of being a relative outsider. She is opining on a wide array of topics, but the primary theme is more spending.
New US Climate Deal Could Make EVs, Energy Bills Cheaper
This article from Bloomberg may be of interest to subscribers. Here is a section:
“This bill is going to open up a lot of avenues for Americans to contribute to the fight against climate change on an individual level,” said Senator Sheldon Whitehouse, a Democrat from Rhode Island, in an emailed statement. “Through a mix of rebates for electric appliances and efficiency retrofits and tax credits for technologies like heat pumps … it’s going to become a lot more affordable to do your part.”
My view - The prospect of hundreds of billions in support for renewable energy solutions is a clear positive for that sector. However, the big near-term challenge is nothing in this bill will incentivize companies to invest in additional new oil and gas supply.
China Mulls Seizing Builders' Idle Land to Fund Frozen Projects
This article from Bloomberg may be of interest to subscribers. Here is a section:
The proposal, which is still under discussion and could change, would take advantage of Chinese laws allowing local governments to wrest back control of land sold to real estate companies if it remains undeveloped after two years, without compensation. That would give authorities more leeway to direct funds toward uncompleted homes, potentially to the detriment of creditors who would lose claims on some of developers’ most valuable assets.
While officials would have bandwidth to adjust the process to suit local conditions, a typical scenario would involve seizing land from a distressed developer and giving it to a healthier rival, which would in turn provide funding to complete the distressed developer’s stalled projects, the people said. The government could also rezone the seized land in some cases to increase its value, the people added, asking not to be named discussing private information.
The proposal is one of several measures under consideration as Xi Jinping’s government tries to prevent turmoil in the housing market from fueling social unrest and derailing the broader economy. The focus on completing projects is the latest sign that policy makers are prioritizing homeowners over bondholders, who have been burned by a record number of defaults by real estate giants including China Evergrande Group.
My view - Placating the people who have paid deposits and have not taken delivery of their apartments is a national priority as protests spread. Funding property development has been a challenge of the last decade as the government has closed off routes to speculation. Worries about overvaluation have been present for years but the government has not found a way to deflate the bubble with toppling the economy.
Eoin's personal portfolio: profit taken on commodity short
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.