Category: Macro Posts

According to Rystad Energy, total global conventional oil and gas discoveries fell to a low of 6.7 billion barrels of oil equivalent (Boe). To arrive at a Boe, Rystad Energy converts natural gas to a barrel of oil equivalent. In 2012, the world discovered 30 billion Boe of oil and gas versus the 6.7 billion Boe last year:

 

global oil capital investment has fallen right at the very time we need it the most. In the EIA’s International Energy Outlook 2017, world oil capital investment fell 45% to $316 billion in 2016 versus $578 billion in 2014

The major global oil companies have been forced to cut capital expenditures to remain profitable and to provide free cash flow. coupled with low discoveries and more than expected run down from shale will impact oil production in the coming years.
Thus, the world will be facing the Energy Cliff much sooner than later.

Whether you like him or hate him ….. Trump tax cuts and policy on capital repatriation is finally working. The chart below shows the cash repatriation to US by corporates and any liquidity injection is actually good for US at the expense of the repatriating country.

On a seperate note the below chart from International Institute of Finance (IIF) shows the overvaluation of Rupee.

Combine the above two charts then the conclusion is clear. Money is moving back to US and Rupee is vulnerable to the capital outflow more than other countries because it is massively overvalued.

One of the most watched recession indicator has just turned yellow. The US yield curve has become flat and possibly could invert in coming months if FED continues to tighten the policy.I have always found Bond market signal more rational than equity markets.

US 10-Year minus 2-Year Yield…
Jun ’09: 2.43%
Jun ’10: 2.47%
Jun ’11: 2.54%
Jun ’12: 1.32%
Jun ’13: 2.17%
Jun ’14: 2.09%
Jun ’15: 1.72%
Jun ’16: 0.93%
Jun’ 17: 0.81%
Today: 0.33% (flattest since Aug 2007)

The Lehman crisis was about private sector
The current crisis is sovereign debt crisis in which govt is leveraged and private sector has deleveraged
that’s why Some Italian corporate bonds trade at a negative spread to sovereigns.italy’s luxury carmaker Ferrari and Exor, the owners of Juventus football club, are among a host of companies that can now borrow money more cheaply than the country’s crisis-hit government.

The glue keeping the world together and why capitalism works…..The blowout numbers on job creation in the US economy demonstrates that the USA is indeed holding up the world right now. The U.S labor market in May came in with Non-farm payrolls up 223,000. The unemployment rate now matches April 2000 coming in at 3.8%.
Cutting taxes creates private jobs and creating the incentive to bring the money home will boost the domestic economy in the USA.
US tax receipts are higher YOY in spite of tax cuts and Russell 2000 ( small caps)put a new all time yesterday ….ironically shanghai set a new 2018 low yesterday

Billionaire Ray Dalio, assessing the impact of President Donald Trump’s surprise election, warned that global populism will be an economic force more powerful than monetary and fiscal policies over the next year. We have seen similar forces at play in India’s recent election as well. In an 81-page paper published Wednesday that details the history of populists in 10 countries from Franklin Roosevelt to Hugo Chavez, Dalio analyzed the phenomenon to make sense of today’s current political environment. “We believe that populism’s role in shaping economic conditions will probably be more powerful than classic monetary and fiscal policies. “We will learn a lot more over the next year or so as those populists now in office will signal how classically populist they will be and a number of elections will determine how many more populists enter office.”Populism today is at its highest level since the late 1930s, said Dalio, 67. Bridgewater notes that populism is commonly brought about by gaps in wealth and opportunity, as well as xenophobia and frustration with government inefficiencies. Those factors lead to the emergence of a strong leader to serve the common man, as well as protectionism, nationalism, militarism, conflict and greater attempts to influence and control the media. Populism has been a key focus of Dalio’s in recent months, as it’s emerged in countries including the U.S., U.K., Italy and the Philippines. In mid-January at the World Economic Forum in Davos, he said that the rise of populism threatens multinational corporations and is the biggest force in the world today.

We are all more connected through social media but getting less socially connected Eating meals alone correlates with lifestyle unhappiness (based on the Living Well Index). I study trends and Addressing LONELINESS is going to be a big industry in our future

India surging oil demand

This kind of demand in face of rising prices is surprising but it’s matter of time if prices remain here then either consumer spending will take a hit or if govt decides not to increase the prices then fiscal deficit , inflation currency and bond markets will take a hit.

 The FOMC is drumming in the word “symmetric,” which says that the central bank is comfortable with inflation being somewhat above 2%. In fact, according to the minutes, a period of above-2% inflation “could be helpful” to bring up inflation expectations. This can provide some temporary relief to Oversold EM bonds and currencies And there goes the probability of 4 rate hikes this year