The West's domination of the world is coming to an end

"Kishore Mahbubani, a Singaporean expert on international relations, brings a compelling warning in his succinct new book, Has the West Lost It? His fundamental messages are, first, that the west won, second, that it is now losing, and, finally, that the west must adapt. The west has won because everybody realises that science and technology work and a growing number of societies have learnt to harness it. The west is losing, as a direct result of this lesson, because the domination by an eighth of the world’s people is coming to an end. The west must adapt because it has no sensible alternative. The lesson the west — above all, the US — must learn is, he insists, to interfere far less and

Australian office prices to fall?

Sydney office buildings are currently valued at nearly 30% above replacement cost. Melbourne office buildings are currently valued at about 20% above replacement cost. I am guessing that prices are so high as part of the chase for yield - the yield bubble where assets that produce a decent yield tend to me now priced at levels that history suggests are unsustainable ... and at least when bond yields rise (as they have started to do), this will put fairly strong downward pressure on these "long-duration" yield assets. To state the obvious: If an building is trading at a much higher valuation than its replacement cost, people will build more buildings to arbitrage the difference. This suggests

Australian industrial shares ex banks, most expensive since 1992

The slide below from Watermark Funds shows how in recent years (i.e. since 2014), the market has been getting more and more expensive (higher and higher Price/Earnings Ratio) even though the corporate profit growth was falling and falling ….. As Justin Braitling said, if a company is likely to continue to grow very fast, you do not mind paying a higher Price (eg higher Price/earnings ratio). But it the profit growth outlook changes to much less future profit, the value of the company is lower … and so you should be paying a lower P/E rato. As you can see from this chart, the prices of industrials ex-banks are at clearly their most expensive since 1992, yet their profit growth is near the

World Debt time bomb ticking

"Is the world sitting on a debt time bomb?A new global debt database launched by the International Monetary Fund here in Washington last week shows combined public and private debt has ballooned to at least $US164 trillion ($218 trillion). Adding in a broader range of debt instruments, including financial sector debt, world debt is at a record high of $US243 trillion, or about 320 per cent of GDP. " 'A decade of artificially low interest rates since the global financial crisis has encouraged governments, corporations and households to binge on cheap borrowing.The sharp rise in credit is ironic given that over-leveraged American consumers and banks were a root cause of the 2008 financial cri

USA untimely windback of financial regulation

"Financial crises always start the same way. Loose monetary policy leads to an increase in debt and a rise in risk-taking. Over-confident financiers, lax regulators and politicians desperate to please voters operate in this toxic environment until a bubble eventually bursts, taking the financial system down with it. I am not saying we are heading for this fate in the very near future. But it is worth noting that this coming week the US Congress may very well pass a bill to rollback the post-financial crisis-era Dodd-Frank reforms. This is happening at a time when interest rates have been at historic lows for nearly 10 years, public and private debt is at record levels, consumer debt loads a

Inflation shock could come from anywhere - Myron Scholes

"In the short term I think that major risks ahead are basically what central bankers around the world are going to do," the academic said visiting Sydney this week. "The markets are very unsure whether the central bankers are going to get it right, are they going to be able to increase interest rates at the pace that would keep the economy growing and not cause us to go into recession, or not cause us to go into inflation. "My worry is that their expertise is so imperfect in that dimension that we're either going to have one or the other occurring." "I'm not a prophet or a see-er," he said. "My thinking is that the major issue is on the inflation side is what really happens with oil and scar

Donald Tusk (European Council) - With friends like USA, who needs enemies

European Council President Donald Tusk’s said "with friends like that (USA) who needs enemies." That was how Donald Tusk, one of the European Union’s top officials, took President Trump to task on Wednesday, offering the latest look at how the Continent’s leaders are trying to come to terms with the United States’ shifting policy on issues like the Iran nuclear deal. Mr. Tusk, president of the European Council, which represents the European Union’s heads of government, used 280 characters on Twitter not only to rebuke Mr. Trump’s head-snapping policy decisions but also to reaffirm the bloc’s commitment to its own agenda. https://www.nytimes.com/2018/05/16/world/europe/europe-donald-tusk-twee

How the West should judge China - Martin Wolf

"The west must accept its relative decline or engage in a grossly immoral and probably ruinous struggle to prevent it. That is the most important truth of our era." "The right view for the west to take is that China is indeed a significant competitor. Its rise will create many dilemmas for the west and especially for the US. But China is also an essential partner in ensuring a reasonably co-operative, stable, prosperous and peaceful world. The west needs to think much harder about how such a world should work. The US administration’s view — that the unilateral exercise of US power is all that is needed — will fail. It will not manage the global commons that way, not that the Trump administra

RBA - we could have inflation like 1970s

The Reserve Bank of Australia has ramped up warnings that US President Donald Trump's debt-funded fiscal stimulus may have parallels to the late 1960s era that presaged nearly two decades of rampant inflation and skyrocketing interest rates. Speaking as the three-month US Treasury yield surpassed the yield on the benchmark S&P 500 for the first time since the 2008 crisis, Reserve Bank deputy governor Guy Debelle said the US was deploying a large amount of debt-funded stimulus in an economy already close to full employment."It's not something you normally do at this stage of the cycle," he said. "It's been done in the past and hasn't often ended up all that well." http://puzzlefinancialadvice

Fidelity worries about house prices

These 2 key charts worry Fidelity about house prices. " Fidelity International says the Australian housing market appears overvalued on three key measures and is a risk for investors, with unemployment and rising interest rates the potential triggers for a correction. Paul Taylor, the highly rated manager of Fidelity's Australian Equities Fund, said there were two questions investors needed to ask about the housing market – is it fundamentally overvalued and what catalyst would shine a spotlight on that overvaluation and create a market reaction? " http://www.afr.com/markets/equity-markets/fidelitys-paul-taylor-is-watching-for-two-triggers-to-spark-house-price-falls-20180507-h0zrbb "It shoul

Labour shortages feeding wage inflation

Labour shortages are now being felt across much of the developed world, feeding an underswell of wage price inflation - part of growing inflationary pressures that coudl push interest rates up a fair way ... an din doing so, bring down asset prices.

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