deflation

Pandemic leads to ‘baby bust’ as births decline in most countries

A year ago, many were suggesting the lockdowns might produce a “baby boom” as couples spent more time together. But early data suggests the world is instead seeing a “baby bust”. As Nikkei Asia reports: “Births (in December/January) have fallen between 10% and 20% in such countries as Japan, France and Spain — and even

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A new recession era to emerge

Contingency planning has become mission-critical. The longer the coronavirus pandemic continues, the more it will expose the underlying fragility of today’s debt-laden global economy. Companies therefore have to move into crisis management mode, with a number of key areas requiring immediate attention: • Employee health and safety is the top priority. Governments are slowly waking

A new recession era to emerge Read More

Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms

Never let reality get in the way of a good theory. That’s been the policy of western central banks since the end of the BabyBoomer-led SuperCycle in 2000, when the oldest Boomer moved out of the Wealth Creator 25-54 age group and into the Perennial 55+ cohort. Inevitably this led to a slowdown in growth,

Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms Read More

Chart of the Year – China’s shadow banking collapse means deflation may be round the corner

Last year it was Bitcoin, in 2016 it was the near-doubling in US 10-year interest rates, and in 2015 was the oil price fall.  This year, once again, there is really only one candidate for ‘Chart of the Year’ – it has to be the collapse of China’s shadow banking bubble: It averaged around $20bn/month

Chart of the Year – China’s shadow banking collapse means deflation may be round the corner Read More

US Treasury benchmark yield heads to 4% as 30-year downtrend ends

The US 10-year Treasury bond is the benchmark for global interest rates and stock markets.  And for the past 30 years it has been heading steadily downwards as the chart shows: US inflation rates finally peaked at 13.6% in 1980 (having been just 1.3% in 1960) as the BabyBoomers began to move en masse into the […]

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US Treasury benchmark yield heads to 4% as 30-year downtrend ends Read More

Budgeting for the Great Unknown in 2018 – 2020

“There isn’t anybody who knows what is going to happen in the next 12 months.  We’ve never been here before.  Things are out of control.  I have never seen a situation like it.“ This comment from former UK Finance Minister, Ken Clarke, aptly summarises the uncertainty facing companies, investors and individuals as we look ahead […]

The post Budgeting for the Great Unknown in 2018 – 2020 appeared first on Chemicals & The Economy.

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The Great Reckoning for policymakers’ failures has begun

Next week, I will publish my annual Budget Outlook, covering the 2018-2020 period. The aim, as always, will be to challenge conventional wisdom when this seems to be heading in the wrong direction.  Before publishing the new Outlook each year, I always like to review my previous forecast. Past performance may not be a perfect […]

The post The Great Reckoning for policymakers’ failures has begun appeared first on Chemicals & The Economy.

The Great Reckoning for policymakers’ failures has begun Read More

Chemical industry data shows reflation remains hope, not reality

Western central bankers are convinced reflation and economic growth are finally underway as a result of their $14tn stimulus programmes.  But the best leading indicator for the global economy – capacity utilisation (CU%) in the global chemical industry – is saying they are wrong.  The CU% has an 88% correlation with actual GDP growth, far […]

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“Exponentially rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways”

Companies and investors have some big decisions ahead of them as we start the second half of the year.  They can be summed up in one super-critical question: “Do they believe that global reflation is finally now underway?” The arguments in favour of this analysis were given last week by European Central Bank President, Mario Draghi: […]

“Exponentially rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways” Read More

Oil price weakness will unmask reflation and recovery myth

Oil markets have been at the centre of the recent myth that economic recovery was finally underway.  The theory was that rising inflation, caused by rising oil prices, meant consumer demand was increasing.  In turn, this meant that the central banks had finally achieved their aim of restoring economic growth via their zero interest rate […]

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US 10-Year interest rates suggest Great Reckoning may be near

 ”History doesn’t repeat itself, but it often rhymes“, Mark Twain Bob Farrell of Merrill Lynch was rightly considered one of the leading Wall Street analysts in his day.  His 10 Rules are still an excellent guide for any investor.  Equally helpful is the simple checklist he developed, echoing Mark Twain’s insight, to help investors avoid […]

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US pensioners pay the price for Fed’s monetary policy failure

There was one bit of good news this week.  For the first time since the financial crisis began, a Governor of the US Federal Reserve acknowledged that today’s demographic changes are having a major impact on the US economy. John Williams, of the San Francisco Fed, argued that: “Shifting demographics….(mean that) interest rates are going […]

US pensioners pay the price for Fed’s monetary policy failure Read More

The end of the Economic SuperCycle

A paradigm shift is underway in global petrochemical and polymer markets, as I discuss in a new article for ICIS Chemical Business. Previously successful business models, based on the supply-driven principle, no longer work. As our new study, “Demand – the New Direction for Profit”, explains, companies now need to adopt demand-led strategies if they […]

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Chemical companies see difficult times ahead in 2016

The chemical industry remains the best leading indicator for the global economy.  That much is clear from the warnings it has delivered over the past year: Q3 results in November highlighted the need for “new strategies and business models“ Q2 results in July suggested “continued uncertainty over outlook“ Q1 2015 results in May revealed “increased […]

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“World faces wave of epic debt defaults” – central bank veteran

Only one central banker spotted the subprime crisis before it occurred – William White.  Now he is warning that the world will have to revive the Old Testament concept of “debt jubilees“, with much of today’s debt being written off: “Debts have continued to build up over the last eight years and they have reached such […]

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Japan goes back into recession as stimulus policies fail, again

This week’s economic data from Japan confirmed, once again, that demographic changes are far more important for the economy than monetary stimulus. Japan’s premier Abe took power in 2012, promising to end the decline in Japan’s economic growth.  He appointed a new Governor for the Bank of Japan, and claimed that his “3 arrows policy” […]

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Deflation returns to the major economies as stimulus fails, again

Next week, I will publish my annual Budget Outlook, covering the 2016-2018 period.    The aim, as always, is to challenge conventional wisdom when this seems to be heading in the wrong direction: The 2007 Outlook ‘Budgeting for a Downturn‘, and 2008′s ‘Budgeting for Survival’ meant I was one of the few to forecast the 2008 Crisis 2009′s ‘Budgeting […]

Deflation returns to the major economies as stimulus fails, again Read More

Inflation turns to deflation as stimulus debt now has to be repaid

Its not what we know that causes the major problems.  Its what we think we know, but don’t. We know, for example, that markets balance supply and demand by shifting prices up and down.  Too much demand and/or too little supply, will mean higher prices and inflation.  This is what happened as the BabyBoom took place: Medical […]

Inflation turns to deflation as stimulus debt now has to be repaid Read More

Policymakers’ out-of-date economic models fail to create growth, again

Since 2010, May/June has seen the US Federal Reserve start to realise it would have to revise its optimistic New Year forecast that economic recovery was inevitable. As its deputy chairman, Stanley Fischer, noted last August “Year after year we have had to explain from mid-year on why the global growth rate has been lower than […]

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Economic impact of ageing populations is obvious, but ignored

Too many policymakers, companies and investors are continuing to ignore the dramatic changes taking place in the age profile of the global population.  Yet common sense tells us these must have a major impact on the economy.  The impact comes from 2 equally important developments: One is the rise in the number of people in the New […]

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European interest rates go negative as Draghi boosts stock markets

Historians will not look kindly on Mario Draghi, head of the European Central Bank. They will ask what he thought he was doing, issuing an extra €1tn ($1.05tn) of debt from March 2015, when the Eurozone was already struggling under a dead-weight of government debt: In the big countries, Italy has $47k of debt per person; […]

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Fertility rates have collapsed in the world’s 10 largest economies

One of the great myths of our time is that the world’s population is inevitably growing.  Almost everyone has heard that the population is certain to reach 9bn by 2050, from today’s 7.3bn. Yet births in 2013 in the G7 economies (almost half of the global economy) were at the lowest level since the Great Depression year […]

Fertility rates have collapsed in the world’s 10 largest economies Read More

Oil prices have further to fall as US inventory hits new records

Another week, and another record high for US oil inventories.  Oil prices clearly have some way to go, before they return to being based on the fundamentals of supply and demand. Thankfully, the looking-glass world of $100/bbl prices has finally begun to shatter over the past 9 months.  And we can expect prices to return to historical […]

Oil prices have further to fall as US inventory hits new records Read More

China exports deflation to the West

Unfortunately, the European Central Bank (ECB) does not read the blog, or yet subscribe to ‘The pH Report’.  If it did, it would have been forewarned back in August that a collapse in oil prices was potentially about to provide the catalyst for the arrival of deflation. Instead, as the Minutes of its critical January […]

China exports deflation to the West Read More

Japan’s government debt now $100k per person

Debt, debt, glorious debt,      Nothing quite like it for cooling the blood.      So follow me, follow, down to the hollow                                                             And there let us wallow in glorious debt  (apologies to Flanders & Swann) It seems impossible today, but until the year 2000 most Western countries were reducing their debt burdens.  Thus President Bill Clinton boasted […]

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Rising life expectancy enabled Industrial Revolution to occur

Living standards have risen 20-fold over the past 200 years.  Yet they rose just 3-fold over the previous 800 years.  What enabled this dramatic change to take place? The key event was clearly the Industrial Revolution.  As Andy Haldane, chief economist at the Bank of England, notes in a thought-provoking new paper: “In explaining rising living standards since […]

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Global shipping index hits all-time low

The world’s major shipping index, the Baltic Dry (BDI), has collapsed by 2/3rds since November, and by 80% since its earlier December 2013 peak, as the chart shows.  It is now at an all-time low of 509, almost half of its initial 1000 level when established in January 1985. Shipping is the major mode of transport for world trade, […]

Global shipping index hits all-time low Read More

Deflation gains: China’s plastics market sees over-capacity

More and more commentators are beginning to recognise that deflation is becoming inevitable in many major economies: China’s producer prices fell -4.3% last month, and its consumer prices rose just 0.8% Eurozone consumer prices fell in December to -0.2%, and are likely to have fallen further in January US prices rose just 0.8% in December and are […]

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Oil market faces “historic shift” – International Energy Agency

The above chart highlights one major reason behind my forecast last August that oil prices were about to collapse.  This was that US inventories were so high, storage was starting to run out: Inventory had reached all-time record levels, and was at around 60 days of sales (blue area) And so prices simply had to fall, to […]

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The China middle class myth moves us closer to protectionism

Believing conventional wisdom can destroy your profits.  One example is playing out in the oil market before our eyes. Another example is the myth that China was about to become middle class.  Yet income levels always made this impossible: More than 9 out of 10 Chinese earn less than $20/day By comparison, the basic state pension in the UK is 25% higher, at over […]

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Why did nobody else forecast that the oil price would collapse?

Brent oil prices closed at $104.71/bbl on Friday 15 August.  On the following Monday morning, I published the first post in my Great Unwinding series, arguing that: “The Great Unwinding of the failed stimulus policies since 2008 has now begun…oil markets are starting to follow cotton and other commodities in refocusing on the fundamentals of supply and […]

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US, Japan consumer spend falls, deflation threatens Eurozone

We are now two-thirds of the way through 2014, and critical decisions are looming for companies and investors.  Do they give central banks one more chance to stimulate growth?  And are they prepared to trust policymakers to avoid a major geopolitical crisis in the Ukraine? Or do they decide that ‘enough is enough’, and that […]

US, Japan consumer spend falls, deflation threatens Eurozone Read More

55 plus – a new market

The blog’s analysis about the inevitability of slowing demand and deflation was warmly received at Euromoney’s latest Global Bond Investors’ Congress.   Far fewer of this year’s attendees still believed that central banks could return the Western economy to SuperCycle growth levels. Thus its concept of the 3 Normals received a most enthusiastic response. This week has seen even greater interest develop […]

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ECB gives a figleaf for politicians to hide behind

It is impossible to overstate the seriousness of today’s threat from deflation.  Policymakers refuse to accept that demographic change can create an economic impact.  Instead, they want to believe that increasing debt can somehow stimulate growth. The Financial Times has kindly headlined the blog’s letter on this subject as its lead letter. June 10, 2014 […]

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European policymakers no longer able to ignore deflation

A year ago, European policymakers and central bankers were dismissive when the blog suggested deflation was a far bigger threat than inflation – when it was speaking at the world’s major conference for bond investors.  Later this month, the blog expects a different response when returning to speak at the same conference. Last week, the European Central Bank (ECB) was forced to […]

European policymakers no longer able to ignore deflation Read More

Network effect leaves central banks fighting the real world

The blog first learnt about the network effect in the late 1990s, during the successful launch of the eBusiness platforms CheMatch and then ChemConnect.   Its Silicon Valley colleagues patiently explained that markets tended to move in predictable stages, once a new concept or product was launched: Everyone would initially jump on the bandwagon, not wanting […]

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Ageing populations create repayment risk for government bonds

Government bonds in the larger, wealthy countries of the West have traditionally been regarded as being “risk-free”.  Most countries have failed to pay their debts at some time in the past, but it hasn’t happened in the post-War period for the major economies, and so investors have forgotten this can happen. This situation may well change […]

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“It’s worse than 2007, because then it was a problem of the developed economies”

William White was the only central banker to publicly warn of the risks to the world economy long before the Crisis, when he was chief economist of the Bank for International Settlements (the central bankers’ bank).  He also warned of the problems that would be caused by their stimulus programmes as early as September 2009. A blog […]

“It’s worse than 2007, because then it was a problem of the developed economies” Read More

China’s credit cuts will send seismic tremors around the world

Monday’s Interesting Quotes post highlighted how China’s leadership clearly recognise they have a massive debt problem, as detailed in the blog’s recent Research Note. Further evidence for this was provided by yesterday’s bank lending figures, which showed total lending down 19% versus March 2013 at Rmb2.07tn ($333bn), and the lowest increase in money supply since 2001. This makes […]

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Japan’s debt now $80k for every man, woman and child

Question:  Why will Starbucks reduce the menu price for its venti green-tea frappucino in Japan next Tuesday, when the price is actually going up? Answer:  Because the government hopes the lower menu price will fool people into thinking the price has gone down It is, of course, a nonsense.  And no doubt most Japanese will be quite annoyed that […]

Japan’s debt now $80k for every man, woman and child Read More

Demographics drive demand and fertility rates have fallen

A major debate is underway in Eurozone financial markets about the imminent approach of deflation.  As the chart above shows, Eurozone inflation has ben falling steadily for the past 2 years.  Yet most still fail to recognise that today’s demographics make this development more or less inevitable.  The Financial Times has kindly printed  the blog’s […]

Demographics drive demand and fertility rates have fallen Read More

“The dog ate my homework”: excuses for economic slowdown

There were never any excuses from policymakers during the BabyBoomer-led SuperCycle from 1983 – 2007.  The Chairman of the US Federal Reserve, Alan Greenspan, came to be styled ‘The Maestro’.  Whilst the Governor of the Bank of England argued that his efforts had created the NICE decade of Non-Inflationary Constant Expansion. Central bankers came to be seen as wise […]

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Seven global implications of China’s new policies

Everyone remembers the old joke, “Why did the elephant wear dark glasses?”, and the answer, “So that she wouldn’t be recognised”.  A new version popped into the blog’s mind this week, when finishing its new Research Note on the impact of China’s new policies on the global economy: “Why did nobody notice that China was the ‘elephant […]

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The trend is your friend, until it isn’t

Investing in today’s financial markets is relatively easy.  You simply have to believe that governments in the US, Japan and Europe will continue to provide plenty of free cash to investors as part of their Recovery Scenario of a quick return to ‘normal growth’.  It doesn’t matter whether the investor believes in the Scenario, the driver is simply the fear of […]

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Nobody realised the BabyBoom had happened till long after it finished

Milton Friedman received a Nobel Prize for economics in 1976, partly on the basis of his analysis that ‘inflation is everywhere and always a monetary phenomenon’.  It sounds an appealing insight, but of course it is wrong.  The reason is that it confuses cause and effect. The above chart presents a different view, highlighting the […]

Nobody realised the BabyBoom had happened till long after it finished Read More

“Deflation fears spark shock ECB rate cut”

The mention of deflation in the above front page headline of Friday’s Financial Times will not have surprised blog readers.  But it appears that not enough people in the European Central Bank read the blog, as the FT went on to report the ECB’s sense of ”shock” at the thought that deflation could now be just around the corner. This highlights the enormous […]

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Slowing demand and over-capacity create a Cycle of Deflation

“More buyers than sellers” was financier JP Morgan’s famous reply, when being asked why stock prices had risen.  The same, of course, is true of inflation.  During the 1970s, there were large numbers of Western BabyBoomers, and relatively few older people producing the goods that these young people wanted to consume.  So inflation rose sharply, to […]

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