Superpower Transition - USA to China

USA as a Superpower is in decline, and the Chinese are the rising Superpower. At what stage of this transition, are we at? Ray Dalio in his paper "The Big Cycles over the last 500 years", describes the stage of this transition as being like this. In this simplified representation, NLD is Netherlands, GBR is Great Britain of course, USA and China are fairly self-explanatory. A more numerically precise diagram of the transitions can be seen below. Please note the rate at which China is approaching dominant superpower-hood - very fast. And I think this following chart is also very telling. Please note in that next chart: That education is the leading cycle. Please note that it is the emerging

$220b non-performing bank loans. How much will become bad debts?

In the last recession, Westpac had to be rescued by Kerry Packer and ANZ nearly had to be rescued. In recessions, bad debts tend to rise sharply. And now, it is likely that economic depression is ahead. This puts Australian banks at high risk of major losses and possible failure. When a bank loan becomes a bad debt, if the loaned funds are not recoverable (eg if the borrower goes into bankruptcy), the loss of capital by the bank, is a loss on the profit and loss statement ..... and an income loss by the bank, causes a reduction of shareholder funds. Since banks are highly geared businesses, it can only require a modest proportion of bad debts to drive a bank into insolvency. So let us look

Anatole Kaletsky - significant fall in equity prices ahead

Anatole Kaletsky’s key points: 14/5/20 1-3 months. Markets highly likely “his view that a significant fall in equity prices is coming” 1-3 years. “Sometime in 2021, Kaletsky thinks it’s very likely another bull market will start after a moderate economic recovery, although he believes earnings will be a lot lower than in 2019.” But the markets have been behaving as if there's 100% probability,” he said, yet there’s no clear evidence that fiscal or monetary stimulus will avoid a depression. “essentially guarantees zero or near-zero interest rates all over the world, at least for the next two years, and possibly for as long as the next three years.” 3+ years out. But there will be a price to

Pre-COVID19 "normality" is not returning

COVID-19 has reshaped our world - forever. There are very many reasons why the world will not be returning to the pre-COVID-19 "normality" that we used to know. Here are some of the reasons why: Martin Wolf 14/5/20: The thing we most definitely know is that we will emerge from this crisis with much more debt in the public sector, very large fiscal deficits, a lot more debt in the private sector as well, and almost certainly we will already have experienced a great many defaults, particularly in the private sector, and particularly in emerging economies. Taxes will rise. Taxes on the relatively well-off will rise, I think almost inevitably. We are not going to be able to repeat in the Western

Soros - COVID19, Crisis of a Lifetime

Even before the pandemic hit, I realized that we were in a revolutionary moment where what would be impossible or even inconceivable in normal times had become not only possible, but probably absolutely necessary. And then came COVID-19, which has totally disrupted people’s lives and required very different behavior. It is an unprecedented event that probably has never occurred in this combination. And it really endangers the survival of our civilization. We will not go back to where we were when the pandemic started. That is pretty certain. But that is the only thing that is certain. Everything else is up for grabs. I do not think anybody knows how capitalism will evolve. Germany’s Federal

US jobless rate is highest since Great Depression

"The US unemployment rate hit 14.7 per cent in April, the highest rate since the Great Depression, as 20.5 million jobs vanished in the worst monthly loss on record. The figures are stark evidence of the damage the coronavirus has done to a now-shattered economy. The losses reflect what has become a severe recession caused by sudden business shutdowns in nearly every industry. Almost all the job growth achieved during the 11-year recovery from the Great Recession has now been lost in one month." AFR 9/5/20 ​The following is also a useful related article

Reasons why Aussie recession will be severe

Some of the reasons why the coming Australian recession is likely to be severe: COVID-19 has caused a massive shock to the consumer. Consumers have closed their purse ... people are not spending. Consumption is 56% of GDP. So by itself, the sharp fall in consumer spending seems highly likely to take Australia in a deep recession. And the shock consumer's have had, from COVID-19 has changed (I believe) consumer sentiment quite drastically. Because of the historic extreme of household debt (see charts below), it has not taken much to put a lot of Australian's into financial stress.

COVID-19 silver lining - Globally coordinated research into new treatments

At least one positive thing has come out of this COVID-19 crisis so far. It is not so much that Australia is joining this collective fight to find treatments etc for this virus. It is that globally , there has been far too little investment in research and development of new antibiotics and anti-bacterial treatments, as drug-resistance grows to current antibiotics. People like Jim O'Neill have been trying to raise global awareness of this problem - so that there can be more money focused collectively on this global problem. But the world has been too blasé, too complacent to put t

BofE - UK - worst recession in 300 years

'The Bank of England has forecast that the coronavirus crisis will push the UK economy into its deepest recession in 300 years, with output plunging almost 30 per cent in the first half of the year, but it decided not to launch a new stimulus." .... output would slip 3 per cent in the first quarter followed by a further 25 per cent fall in the second. This would mean an almost 30 per cent drop overall in the first half of 2020, the fastest and deepest recession since the “great frost” in 1709. '

Mass corporate defaults US$19T+++ likely

" Mass corporate defaults are now in prospect. The IMF estimated last October that debt owed by firms unable to cover interest expenses with earnings — “zombie” companies — could rise to $19tn in a scenario half as severe as the financial crisis. Since the economic outcome of the coronavirus will be far worse than the financial crisis, the carnage will be horrendous."$19T++_corporate_defaults_owes_much_to_foolhardy_share_buybacks.pdf Just to put US$19Trillion into perspective, The size of the USA economy (GDP) was US$$20.4Trollion is 2018.

The Coming Greater Depression of the 2020s

Nouriel Roubini:- The world has long been drifting into a perfect storm of financial, political, socioeconomic, and environmental risks, all of which are now growing even more acute. After the 2007-09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major downside risks that made another crisis inevitable. And now that it has arrived, the risks are growing even more acute. Unfortunately, even if the Greater Recession leads to a lackluster U-shaped recovery this year,

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