I haven't been posting any trades for a while, and I don't think I will try to post every single one, too much to keep up with. But this is still a good place to put my thoughts to pap...er...anyways. This is the first of 4 questions I want to answer for possible trades in 2016. Positioning is extreme in many areas, all betting on further dollar strength, China weakness and oil oversupply. While some amount is not incorrect, parts of that reasoning are past their time and momentum has (and will likely continue to for the time being) carried these trades too far. My 4 questions concern: 1) China's economic growth and rebalancing; 2) EM's caught up in the wave of selling that don't necessarily belong in a group with, say, Brazil; 3) USD strength: against which currencies can this reverse and when?; 4) Oil - oversupplied but relatively balanced market - when will the price bottom and will we see a quick rebound or a gradual one?
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So I'm going to leave the "analysis" (more like scattered thoughts) below as-is for the time being. Long story short, stabilization in China will require more fiscal policy measures, and some monetary ones won't hurt either. The question is: to what extent is Xi willing to anger many in his country who depend on industry and construction for their wealth - and their jobs - to continue the rebalancing? At the moment it looks like targeted programs (e.g., urbanization, Yuan weakening, export and auto tax cuts) are it for fiscal policy; that won't be enough. Are there plans in the works to hit the 6.5% growth target for 2016 (or are we about to find out its going to be lower?) (will they fund African/EM infrastructure projects to use, rather than close, their excess capacity?). If not, how bad do things need to get before they step up the support? I don't know the answers to these questions, but I need to find out. Without that, all of the below is just yada-yada-yada.
I.e., to understand the economics, look at the politics
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So I'm going to leave the "analysis" (more like scattered thoughts) below as-is for the time being. Long story short, stabilization in China will require more fiscal policy measures, and some monetary ones won't hurt either. The question is: to what extent is Xi willing to anger many in his country who depend on industry and construction for their wealth - and their jobs - to continue the rebalancing? At the moment it looks like targeted programs (e.g., urbanization, Yuan weakening, export and auto tax cuts) are it for fiscal policy; that won't be enough. Are there plans in the works to hit the 6.5% growth target for 2016 (or are we about to find out its going to be lower?) (will they fund African/EM infrastructure projects to use, rather than close, their excess capacity?). If not, how bad do things need to get before they step up the support? I don't know the answers to these questions, but I need to find out. Without that, all of the below is just yada-yada-yada.
I.e., to understand the economics, look at the politics
