Why we need economic superheroes, Sharpfokus38
The battle rages
Who’s your favorite superhero?
15 years ago, I wrote a thesis for my fund manager exam about how after decades of slowdown, the world economy was going to grow faster. It didn’t. Why? Because there were no superheroes. Instead there were anti-growth villains. Now, finally, the growth superheroes have summoned enough energy to fight the battle required to grow faster. It’s a big but winnable battle.
China
Trade war
The trade war against the ‘great deflator’ China has been won with hardly a shot fired. It’s a battle the growth superheroes could always easily win. China relies on trade, which is great, but as you know the customer always wins. It’s amazing how quickly things changed. Only a few weeks ago China & it’s leadership seemed all powerful, reverting to a President for life.
N Korea
China is also getting clobbered politically. No sooner had the trade war with the US started to emerge, the anti hero neighbor only they could seemingly control, North Korea finally started bowing to US pressure too. This must have come as a shock to Beijing, who immediately scrambled to summon Kim. But the damage to apparent Chinese political power is done.
SE Asia
Next must come a resurgence for SE Asia. Some of us can remember when SE Asia was the ‘Tiger’ China nowhere. Then things flipped & to add insult, much of the reversal came from business groups here, switching investment there. Politically we’ve been bullied by China too. But did you see that this week the ‘master’, Mahathir, has started the fight back.
Yield curve
What is it
One of the best places you can watch the battle for growth play out is in bond markets. One of the symptoms of stronger growth I wrote about 15 years ago was US bond yields & yields have jumped. There’s been a recent focus on the yield curve which is traditionally the difference between the 2 year yield & the 10 year. Higher 10 means growth, higher 2 means recession.
Not inverted
You have seen concern that this has inverted, short rates above long, which would be a sign of economic contraction. But this hasn’t happened. While there are of course many different rates, the 2 year is currently at 2.2% & the 10 is at 2.8%. The traditional curve measure is comfortably positive.
Yields to rise
The sign of growth I wrote about 15 years ago was higher 10 year yields after decades of decline. It didn’t happen then. Yields kept dropping, then suddenly last year, you saw them reverse & jump higher. This the most important sign of faster growth you can watch. You should see this move higher again soon.
UK
The 2nd place
Every superhero needs a good number 2. The number 2 is normally the UK. If you think back to the 1980s which was the last time the growth superheroes made a break for higher growth, you could argue the UK was even number one. Since then the UK got increasingly dragged into slow growth Europe. Now it’s time for the Uk to pick up the number 2 baton again.
Brexit
Suddenly the UK finally summoned the strength & voted overwhelmingly to get out of Europe. If you have any doubt about the victory just look at a color map of voting by region. It was a landslide. Just like the US presidential election. In the UK & US we have a first past post winner takes all system, not a popular vote. Indonesia has moved to this stronger system for presidential elections too.
Will happen
The reaction to Brexit, just like to Trump, shows how entrenched anti growth forces are, but in reality just like the cartoons, superheroes always win. As only the UK can, putting one front in front of another it is moving to leave. At the same time the EU is crumbling, with more pro growth heroes emerging in Germany, Italy etc to follow the UK lead,
The new superheroes
You live in fascinating times. A unique shift, decades in the making, it’s not technology, it’s growth. Heading higher vs heading lower before. Because slower growth has matched faster growth of government, the opposite is now happening which makes for political storms, but focus will shift to the era of the new growth superheroes. Great times ahead.
Who’s your favorite growth superhero& why?
Let me know.
Sebastian
Who’s your favorite superhero?
15 years ago, I wrote a thesis for my fund manager exam about how after decades of slowdown, the world economy was going to grow faster. It didn’t. Why? Because there were no superheroes. Instead there were anti-growth villains. Now, finally, the growth superheroes have summoned enough energy to fight the battle required to grow faster. It’s a big but winnable battle.
China
Trade war
The trade war against the ‘great deflator’ China has been won with hardly a shot fired. It’s a battle the growth superheroes could always easily win. China relies on trade, which is great, but as you know the customer always wins. It’s amazing how quickly things changed. Only a few weeks ago China & it’s leadership seemed all powerful, reverting to a President for life.
N Korea
China is also getting clobbered politically. No sooner had the trade war with the US started to emerge, the anti hero neighbor only they could seemingly control, North Korea finally started bowing to US pressure too. This must have come as a shock to Beijing, who immediately scrambled to summon Kim. But the damage to apparent Chinese political power is done.
SE Asia
Next must come a resurgence for SE Asia. Some of us can remember when SE Asia was the ‘Tiger’ China nowhere. Then things flipped & to add insult, much of the reversal came from business groups here, switching investment there. Politically we’ve been bullied by China too. But did you see that this week the ‘master’, Mahathir, has started the fight back.
Yield curve
What is it
One of the best places you can watch the battle for growth play out is in bond markets. One of the symptoms of stronger growth I wrote about 15 years ago was US bond yields & yields have jumped. There’s been a recent focus on the yield curve which is traditionally the difference between the 2 year yield & the 10 year. Higher 10 means growth, higher 2 means recession.
Not inverted
You have seen concern that this has inverted, short rates above long, which would be a sign of economic contraction. But this hasn’t happened. While there are of course many different rates, the 2 year is currently at 2.2% & the 10 is at 2.8%. The traditional curve measure is comfortably positive.
Yields to rise
The sign of growth I wrote about 15 years ago was higher 10 year yields after decades of decline. It didn’t happen then. Yields kept dropping, then suddenly last year, you saw them reverse & jump higher. This the most important sign of faster growth you can watch. You should see this move higher again soon.
UK
The 2nd place
Every superhero needs a good number 2. The number 2 is normally the UK. If you think back to the 1980s which was the last time the growth superheroes made a break for higher growth, you could argue the UK was even number one. Since then the UK got increasingly dragged into slow growth Europe. Now it’s time for the Uk to pick up the number 2 baton again.
Brexit
Suddenly the UK finally summoned the strength & voted overwhelmingly to get out of Europe. If you have any doubt about the victory just look at a color map of voting by region. It was a landslide. Just like the US presidential election. In the UK & US we have a first past post winner takes all system, not a popular vote. Indonesia has moved to this stronger system for presidential elections too.
Will happen
The reaction to Brexit, just like to Trump, shows how entrenched anti growth forces are, but in reality just like the cartoons, superheroes always win. As only the UK can, putting one front in front of another it is moving to leave. At the same time the EU is crumbling, with more pro growth heroes emerging in Germany, Italy etc to follow the UK lead,
The new superheroes
You live in fascinating times. A unique shift, decades in the making, it’s not technology, it’s growth. Heading higher vs heading lower before. Because slower growth has matched faster growth of government, the opposite is now happening which makes for political storms, but focus will shift to the era of the new growth superheroes. Great times ahead.
Who’s your favorite growth superhero& why?
Let me know.
Sebastian