Extraordinary Monetary Disorder

Doug Nolan

M2 money supply has increased $796 billion y-t-d to $15.245 TN. With two months to go, 2019 M2 growth is on track to easily exceed 2016’s record $854 billion expansion. Recent M2 growth is nothing short of spectacular. M2 has jumped $329 billion in ten weeks, about an 11.5% annualized pace. Over 26 weeks, M2 surged $677 billion, or 9.3% annualized. One must go all the way back to the restart of QE in late 2012 to see a comparable surge in the money supply. Since the end of 2008, M2 has inflated $7.027 TN, or 86%.

Money Market Fund Assets (MMFA) have similarly exploded this year. Total MMFA have increased $517 billion year-to-date (to $3.555 TN), an almost 20% annualized rate. Like M2, six-month growth in MMFA has been extraordinary: expansion of $472 billion, or 35% annualized.

With MMFA at the highest level since 2009, bullish market pundits salivate at the thought of a wall of liquidity coming out of cash holdings to chase a surging equities marketplace. A Tuesday Wall Street Journal article (Ira Iosebashvili) is typical: “Ready to Boost Stocks: Investors’ Multitrillion Cash Hoard: Nervous investors have socked $3.4 trillion away in cash.
But stocks are rising and their nerves are calming, leading bulls to view the huge cash pile as a sign that markets have room to go higher.”

And while MMFA are back to the 2009 level, it is worth pondering that money fund growth hasn’t been this robust since 2007. After ending April 2006 at $2.031 TN, money fund assets began growing rapidly, ending 2006 at $2.382 TN. And after expanding $154 billion, or 13% annualized, during 2007’s first-half, things went a little haywire. MMFA proceeded to surge $1.000 TN, or 53% annualized, over the next nine months.

Recall that subprime erupted in the summer of 2007, with equities stumbling before regaining composure to trade to all-time highs in October.

August 17, 2007: The FOMC’s extraordinary inter-meeting policy adjustment: “To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 bps reduction in the primary credit rate to 5-3/4%…” The FOMC then cut Fed funds 50 bps on September 18th, then another 25 bps both on October 31st and December 11th. The FOMC then slashed rates 75 bps in an unscheduled meeting on January 22, 2008, and another 50 bps on January 30th and another 75 bps on March 18th (to 2.00%).

Conventional thinking has it that market instability and risk aversion were behind the surge in MMFA. Yet there was also a notable acceleration of M2 money supply growth. After expanding at a 5.5% rate during 2007’s first-half, money supply growth surged to a 7.1% pace over the subsequent nine months.

2007 was a period of Extraordinary Monetary Disorder that manifested into acute market instability.

Despite the dislocation that engulfed high-risk mortgage finance, Wall Street finance was “still dancing” right through the summer of 2007. Not only did stock prices ignore subprime ramifications, crude oil prices went on a moonshot – surging from about $70 mid-year to a high of $96 in November. After trading as low as 161 in August, the Bloomberg Commodities Index surged as much as 15% to trade to 186 in November. By June 2008, Monetary Disorder saw crude spike above $140, with the Bloomberg Commodities index almost reaching 240.

My long-held view is the Fed’s aggressive monetary stimulus in 2007 was a major contributor to late-cycle “Terminal Phase Excess” – and resulting Extraordinary Monetary Disorder - that came home to roost during the 2008 crisis. After trading as high as 5.30% in early June 2007, ten-year Treasury yields were 100 bps lower just three months later. Ten-year yields ended 2007 just above 4.00% and were as low as 3.31% by mid-March – a full 200 bps below yields from nine months earlier.

I believe a surge in speculative leverage played an instrumental role in the expansion of marketplace liquidity – that flowed into a rapid expansion of MMFA as well as M2 money supply. It’s worth noting the Fed’s Z.1 “Fed Funds and Repo” category posted Extraordinary growth during this period. After ending 2006 at $3.858 TN, “repos” increased $799 billion over five quarters to $4.657 TN (end of Q1 ’08).

Wall Street was indeed “still dancing” hard through the end of 2007. The Fed moved to bolster the economy in the face of heightened financial instability. The impact of stimulus measures on the real economy is debatable. My own view is that late-cycle stimulus is problematic, as it tends to stoke already overheated sectors and exacerbate imbalances and maladjustment. The impact of stimulus on finance should be indisputable. The upshot of deploying stimulus in a backdrop of market speculation is dangerous speculative Bubbles.

With the enormous growth of M2 and MMFA during 2007 and into 2008, how was it possible for markets to turn disastrously illiquid in the fall of 2008? Because the monetary expansion was being fueled by a precarious expansion of the “repo” market and securities speculative finance more generally.

While markets – Treasuries, corporate Credit, equities, crude and commodities – were being driven by what appeared sustainable liquidity abundance, the source of this underlying monetary stimulus was acutely unstable speculative leveraging. And as the Fed cut rates, yields collapsed, stocks shot skyward and commodities went on a moonshot, the self-reinforcing nature of speculative excess (and leverage) fomenting acute Monetary Disorder.

Speculative blow-offs are a late-cycle phenomenon. Over the course of a boom cycle, financial innovation gathers momentum. The most aggressive risk-takers have proved the most successful, in the process attracting huge assets under management. The laggards come under intense pressure to chase performance with riskier portfolios. Out of necessity, caution is thrown to the wind.

Between new instruments, products and strategies, market structure adapts to an environment of heightened risk-taking and leverage.

In short, a speculative marketplace takes on a strong inflationary bias (upward price impulses).

In such a backdrop, central bank monetary stimulus is extraordinarily potent – perhaps not so much for a late-cycle economic cycle, yet remarkably so for a ripened speculative cycle susceptible to “melt-up” dynamics.

I have posited that late-cycle dynamics turn increasingly precarious due to the widening divergence between a faltering economic Bubble and runaway speculative market Bubbles.

This was certainly the case in the second-half of 2007 and into 2008. I believe this dynamic has been more powerful, more global and much more problematic over the past year.

The Shanghai Composite is up 18.9% y-t-d, the CSI 300 32.0% and the ChiNext index 36.8%, despite economic deterioration and heightened risk. Chinese apartment prices continue to inflate a double-digit rates, as ongoing rapid Credit growth increasingly feeds asset inflation as the real economy struggles. Germany’s DAX equities index enjoys a 2019 gain of 25.3%, France’s CAC40 24.5% and Italy’s MIB 28.4%, in the face of economic stagnation.

ECB stimulus measures have fueled a historic bond market Bubble and formidable equities Bubble, while the real economy barely treads water. Stocks in Russia are up 25.5%, Brazil 22.5%, Taiwan 19.0% and Turkey 13.0%, as EM keys off booming global liquidity excess while disregarding mounting risks. Here at home, the S&P500 has gained 23.4%, the Nasdaq Composite 27.7% and the Semiconductors 50.4%, as the Fed’s “insurance” rate cuts stoke speculative excess.

By the time the collapsing mortgage finance Bubble finally (after several close calls) triggered a run on Lehman money market liabilities (inciting major deleveraging), the system was acutely fragile. “Blow-off” speculative excess had stoked inflation across the asset markets, price distortions increasingly vulnerable to any interruption in the flow of market liquidity. Yet it went much beyond interruption, as the abrupt reversal of speculative leverage caused a collapse in market liquidity.

I believe 2007’s excesses - spurred by Fed stimulus measures that fueled speculative “blow-offs” and gaping divergences between market Bubbles and the vulnerable real economy – sowed the seeds for an unavoidable crisis. Rate cuts only exacerbated late-cycle excess and worsened financial and economic dislocations.

I have that same uncomfortable feeling I had in 2007 – just a lot worse. The global financial system is self-destructing. Reckless monetary policies have inflamed late-cycle excess. I believe the scope of speculative leverage is much greater these days – on a global basis. The Fed in 2007 (and into ’08) extended a dangerous mortgage finance Bubble.

Central bankers these days are prolonging catastrophic global financial and economic Bubbles.

The global economy is much more fragile today, with a faltering Chinese Bubble posing an Extraordinary risk. Highly synchronized global financial Bubbles are a risk much beyond 2008.

Moreover, central bankers have used precious resources to sustain Bubbles, ensuring much greater fragilities will be countered by limited policy capabilities.

We will now await the catalyst for an inevitable bout of de-risking/deleveraging.

There could be a few Lehmans lurking out there – in Asia if I was placing odds. China remains an accident in the making, with another ominous week in Chinese Credit (see “China Watch”).

And near the top of my list of possible catalysts would be a surge in global yields. Sinking bond prices are problematic for highly leveraged holdings. Indeed, it is no coincidence that “repo” market issues erupted the week following a sharp reversal in market yields.

It was a notably rough week for global bond markets. Ten-year Treasury yields surged 23 bps to 1.91% (high since July 31). German bund yields rose 12 bps to negative 0.26% (high since July 12). Japanese yields jumped 13 bps to negative 0.05% (high since May 22). Italian yields surged 20 bps to 1.19%, and Greek yields rose 13 bps to 1.30%. Brazilian (real) 10-year yields surged 30 bps. Eastern European bonds, in particular, were under heavy selling pressure.

It’s worth noting bond prices are down sharply since last week’s Fed rate cut. Meanwhile, stock prices have continued to melt up. One could similarly argue that the expanding Fed balance sheet has been benefiting equities - bonds not so much. In general, monetary stimulus tends to inflate the asset class with the strongest inflationary bias.

Bond prices peaked two months ago. And bonds have good reason to fret aggressive global monetary stimulus. Booming stock markets and resulting loose financial conditions underpin growth and inflationary pressures.

November 9 – Bloomberg: “China’s consumer inflation rose to a seven-year high last month on the back of rising pork prices, complicating policy makers’ decision on whether to further ease funding for the country’s weakening industrial sector. The consumer price index rose 3.8% in October from a year earlier, up from 3% in the previous month.”

A negative print (down 0.3%) for Q3 Nonfarm Productivity and Unit Labor Costs up 3.6% are supportive of inflationary pressures here in the U.S. But it’s massive supply as far as the eye can see that must have the Treasury market on edge. The uncomfortable reality of a highly levered marketplace, with downward pressure on prices and fiscal deficits approaching 5% of GDP.

Yet negative fundamentals can be ignored so long as China’s Bubbles are about to implode. But with a trade deal somewhat postponing China’s day of reckoning – while holding additional global monetary stimulus at bay – the bond market risk versus reward calculus loses much of its appeal.

It’s possible that a de-risking/deleveraging cycle commenced in early-September. The Fed’s eight-week $270 billion balance sheet expansion accommodated some deleveraging. But at some point the Fed will apparently settle into $60 billion monthly T-bill purchases – that won’t be much help in a de-risking environment. Stocks are fired up at the prospect of a year-end melt-up.

The surprise would be a global bond market beat down – the downside of Extraordinary Monetary Disorder.


The deep appeal of emerging markets is their lack of surface appeal

They are less at risk of a surfeit of sellers over buyers

BILL HICKS, a much-mourned comedian, would pause in the middle of his act as if a thought had just occurred to him. He would ask that anyone in the audience who worked in advertising or marketing kill themselves. This was the only path to redemption now left open. No one took up his invitation.

I know what the marketing people are thinking, he would then say. The anti-marketing dollar, that’s a good market. Look at our research! Bill is smart to tap into it.

Such next-level thinking comes to mind whenever the case for emerging markets is considered.

For professional investors, diverting capital from America’s stockmarket to other less-blessed places seems like an invitation to career suicide.

The dollar’s continued strength is kryptonite to emerging markets. They feel the damage from the trade war most keenly. Sure, emerging markets look cheap. But there is no law saying they cannot become even cheaper.

Cheapness aside, though, there is another, less appreciated, side to emerging markets. As capital rushes into an ever narrower set of favoured rich-country assets, there is growing anxiety that it might all suddenly unwind. At least emerging markets are an uncrowded trade.

This is a paradox that tricksy marketing types should appreciate: the unloved asset class, that’s a good market. You might be wise to tap into it.

But why are emerging markets out of favour in the first place? The perennial fear is they are crisis-prone. Look at Argentina. It has moved with breathtaking speed from default to emerging-market darling and then—unhindered by a $57bn IMF support package—back to the brink of default. But fear of crises is not the only reason for caution.

Indices of emerging-market stocks, such as MSCI’s benchmark, lean heavily towards Factory Asia, and thus to China’s supply chain. This puts investors on the front line of the trade war.

Even away from the trenches, there is plenty to fret about. India has failed to fix its broken banks. The fractious politics of the ANC in South Africa get in the way of much-needed reforms. Russia lacks a convincing economic-growth story. The list goes on.

Emerging-market crises follow a pattern. Foreign investors head for the exit, and there are not enough domestic buyers to replace them. Some factors can make this kind of liquidity-driven crisis more likely: a bloated current-account deficit; an overvalued currency; lots of short-term debt; or runaway inflation. But these days, such vulnerabilities have become rare.

The bigger emerging markets tend to have freely floating currencies. This militates against the build-up of external debts and internal pressures. Their independent central banks aim for low inflation. Most of the 25 emerging markets listed on the indicators page of The Economist have inflation below 4%. It is in the double digits in only two—Argentina and Pakistan.

Low and stable inflation has allowed the local market for government bonds to deepen. Debt burdens financed at short maturities make countries more crisis-prone. Long-term debt makes them more stable.

According to the IMF, the average emerging market has public debt of 54% of GDP, around half the rich-country norm. The average maturity of debt is similar, at around seven years.

All this has made emerging markets much less brittle. Yet assets trade at a discount. The price-to-earnings ratio for the MSCI index of emerging-market stocks is below its average since the mid-1990s. It looks even better value when compared to that in the rich world. The S&P 500 share-price index has only rarely been dearer relative to emerging-market stocks than it is now (see chart).

You should expect out-of-favour markets to be cheap. But they also have a less appreciated appeal. They tend to be uncrowded, and so less at risk of a sudden surfeit of sellers over buyers.

If liquidity risk has fallen in emerging markets, it has probably risen in developed ones. The worry is that investors are chasing the same assets: the safest government bonds; investment-grade corporate bonds; technology stocks; and dollar assets in general.

The more investors cram into these markets, the greater the risk of a rush to the exit.

An allocation to unloved assets insures against such herding. It is hard to drum up much enthusiasm for the leadership or growth trajectories of China, India, Russia and the rest. There are few if any captivating stories of reform and renewal.

But the appeal of emerging markets is in their very lack of superficial appeal. Some bright marketing spark should put that on a billboard.

No Art to the US-China Trade Deal

The real problem with the phase one accord announced on October 11 is the basic structure of the deal into which it presumably fits. From trade to currency, the approach is the same – prescribing bilateral remedies for multilateral problems.

Stephen S. Roach


NEW HAVEN – Dealmakers always know when to cut their losses. And so it is with the self-proclaimed greatest dealmaker of them all: US President Donald Trump. Having promised a Grand Deal with China, the 13th round of bilateral trade negotiations ended on October 11 with barely a whimper, yielding a watered-down partial agreement: the “phase one” Accord.

This wasn’t supposed to happen. The Trump administration’s three-pronged negotiating strategy has long featured a major reduction in the bilateral trade deficit, a conflict-resolution framework to address problems ranging from alleged intellectual-property theft and forced technology transfer to services reforms and so-called non-tariff barriers, along with a tough enforcement mechanism. According to one of the lead US negotiators, Treasury Secretary Steven Mnuchin, the Grand Deal was about 90% done in June, before it all unraveled in a contentious blame game and a further escalation of tit-for-tat tariffs.

But hope springs eternal. As both economies started to show visible signs of distress, there was new optimism that reason would finally prevail, even in the face of an escalating weaponization of policy by the United States: threatened capital controls, rumored delisting of Chinese companies whose shares trade on American stock exchanges, new visa restrictions, a sharp expansion of blacklisted Chinese firms on the dreaded Entity List, and talk of congressional passage of the Hong Kong Human Rights and Democracy Act of 2019. Financial markets looked the other way and soared in anticipation in the days leading up to the October 11 announcement.

And yet the phase one deal announced with great fanfare is a huge disappointment. For starters, there is no codified agreement or clarity on enforcement. There is only a vague promise to clarify in the coming weeks Chinese intentions to purchase about $40-50 billion worth of US agricultural products, a nod in the direction of a relatively meaningless agreement on currency manipulation, and some hints of initiatives on IP protection and financial-sector liberalization. And for that, the Chinese get a major concession: a second reprieve on a new round of tariffs on exports to the US worth some $250 billion that was initially supposed to take effect on October 1.

Far from a breakthrough, these loose commitments, like comparable earlier promises, offer little of substance. For years, China has long embraced the “fat-wallet” approach when it comes to defusing trade tensions with the US. In the past, that meant boosting imports of American aircraft; today, it means buying more soybeans. Of course, it has an even longer shopping list of US-made products, especially those tied to telecommunications equipment maker Huawei’s technology supply chain.

But China’s open wallet won’t solve America’s far deeper economic problems.

The $879 billion US merchandise trade deficit in 2018 (running at $919 billion in the second quarter of 2019) reflects trade imbalances with 102 countries.

This is a multilateral problem, not the China-centric bilateral problem that politicians insist must be addressed in order to assuage all that ails American manufacturers and workers.

Yet without resolving the macroeconomic imbalances that underpin this multilateral trade deficit – namely, a chronic shortfall of domestic saving – all a China fix could accomplish would be a diversion of trade to higher-cost foreign producers, which would be the functional equivalent of a tax hike on US consumers.

Promises of a currency agreement are equally suspicious. This is an easy, but unnecessary, add-on to any deal. While the renminbi’s exchange rate against the US dollar has fallen by 11% since the trade war commenced in March 2018, it is up 46% in inflation-adjusted terms against a broad constellation of China’s trading partners since the end of 2004. Like trade, currencies must be assessed from a multilateral perspective to judge whether a country is manipulating its exchange rate to gain an unfair competitive advantage.

That assessment makes it quite clear that China does not meet the widely accepted criteria for currency manipulation. Its once-outsize current-account surplus has all but disappeared, and there is no evidence of any overt official intervention in foreign-exchange markets. In August, the International Monetary Fund reaffirmed that very conclusion in its so-called Article IV review of China. Although the US Treasury recently deemed China guilty of currency manipulation, this verdict was at odds with the Treasury’s own criteria, and Mnuchin is now hinting that it may be reversed. Far from essential, a new currency agreement is nothing more than a feeble grab for political bragging rights.

The real problem with the phase one accord is the basic structure of the deal into which it presumably fits. From trade to currency, the approach is the same – prescribing bilateral remedies for multilateral problems. That won’t work. Multilateral problems require solutions aimed at the macroeconomic imbalances on which they rest. That could mean a reciprocal market-opening framework like a bilateral investment treaty or a rebalancing of saving disparities between the two countries that occupy the extremes on the saving spectrum.

The saving issue is especially critical for the US. America’s net domestic saving rate of just 2.2% of national income in the second quarter of 2019 is far short of the 6.3% average in the final three decades of the twentieth century. Boosting saving – precisely the opposite of what the US is doing in light of the ominous trajectory of its budget deficit – would be the most effective means by far to reduce America’s multilateral trade imbalance with China and 101 other countries. Doing so would also take the misdirected focus off a bilateral assessment of the dollar in a multilateral world.

A macro perspective is always tough for politicians. That is especially true today in the US, because it doesn’t fit neatly with xenophobic bilateral fixations, like China bashing. With new signs of Chinese resistance now surfacing, the phase one accord may never see the light of day.

But if it does, it will hurt more than it helps in addressing one of the world’s toughest current economic problems.

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China.

Thatcher’s fear of an overmighty Germany lives on in Brexit

Thirty years after the Berlin Wall fell, the power balance in the EU is being upended again

Philip Stephens

web_Thatcher and German re-unification
© Ingram Pinn/Financial Times

Thirty years ago, at one of the hinge points of European history, Margaret Thatcher tipped up at the Kremlin for talks with Mikhail Gorbachev. Britain’s prime minister had once described the Soviet president as someone with whom she could “do business”.

Now, the foundations of Soviet communism were cracking. Hungary had torn down the barbed wire at its border. East Germans were fleeing westwards. The fall of the Berlin Wall was only weeks away.

For journalists travelling with Thatcher, the visit was memorable for more trivial reasons. After a rapid-fire Japanese tour, the prime minister’s party arrived on a gruelling flight from Tokyo. Thatcher travelled on one of the Royal Air Force’s ageing VC-10s. Decades earlier the aircraft had been at aviation’s cutting edge; by the standards of 1989, it was uncomfortable, noisy and, for those squeezed into the back, claustrophobic.

Its limited range meant a refuelling stop at a military air base in bleakest Siberia, where two burly Soviet air force officers joined the party. Were they spies or chaperones? Either way, they would surely report back that the top secret communications equipment carried on the flight resembled nothing so much as a collection of vintage valve radios.

Thatcher had spent a lifetime fighting communism — at one with her great friend US president Ronald Reagan in condemning the Berlin Wall as a shameful barrier to freedom. A year earlier, in a speech in Bruges, she had spoken eloquently of a Europe of democracies that also embraced Prague, Warsaw and Budapest. History was turning her way.

Yet even as the Soviet empire began to unravel, the Iron Lady was having second thoughts. During a long, private encounter in the Kremlin’s St Catherine Hall, Thatcher offered Mr Gorbachev what seems now an unimaginable pledge. “We do not want the unification of Germany,” she said. “It would lead to changes in the postwar borders that . . . [would] undermine the stability of the entire international situation.” Mr Gorbachev should ignore any Nato statements suggesting otherwise. The alliance would not spur the collapse of the Warsaw Pact or indeed the “de-communisation” of eastern Europe.

This was explosive stuff. The note-takers had been told to put down their pens. Mr Gorbachev’s adviser Anatoly Chernyaev, however, wrote a lengthy account when the meeting ended. A shorter version, authored by Thatcher’s aide Charles Powell, reached just a handful of people in Whitehall.

Thatcher’s démarche was a product of personal neuralgia. She never let go of the deep suspicion of Germany shared by many of her generation on the right of the Conservative party.

Had the Germans really changed? Wasn’t aggressive expansionism part of the national character? A year later she sacked the Eurosceptic minister Nicholas Ridley after he compared EU plans for a single currency with Adolf Hitler’s ambitions.  In truth, she agreed with him.
Some others in Europe shared her fears. The cold war stand-off with the Soviet Union had provided a curious stability. When Thatcher met French president François Mitterrand in December 1989 there was talk of a new entente cordiale to contain German power. But Mitterrand soon understood that the genie was out of the bottle. Britain might try to block or delay unification, but France would seek instead to lock a united Germany into a more integrated Europe through the creation of a single currency.

Thirty years later, the postwar transformation of Germany — its firm embrace of pacifism and commitments to democracy and a rules-based international order — still goes unnoticed across a large swath of the Brexit-supporting Conservative party. Boris Johnson struggles to resist parallels between the ambitions of the EU and those of Nazi Germany. The euro is hegemony by another means. The prime minister’s language, and that of his fellow Brexiters, is shot through with imagery — standing alone, surrender, collaborator and traitor — calculated to summon up the second world war.

As it happens, unification did indeed mark the return of the German question — in the simple sense that Germany’s preponderant economic power is once again an unavoidable fact of life. What the Brexiters miss is that the EU was designed as a strong countervailing force. The US security guarantee embedded in Nato serves the same purpose — underpinning the democratic foundations of a European Germany in place of a German Europe.

Brexit upends the big-power balance within the EU. France finds itself alone as a counterpoint to Germany. This at a time when US president Donald Trump is doing his best to weaken Nato. A charitable interpretation of Thatcher’s performance in Moscow would say she wanted to preserve the security offered by the status quo. Brexit marches in the opposite direction. If there is any risk of an over-mighty Germany it lies in the collapse of the present European order.

On the VC10’s flight back to London the journalists joined Thatcher in her more spacious, if scarcely luxurious, quarters. For the only time I can recall on such a trip, she asked the RAF stewards to break out champagne. Then she waxed lyrical about Mr Gorbachev’s great courage in pressing ahead with perestroika and glasnost. Not a whisper was heard of a plan that would have denied East Germans their freedom.

Phase one, scene two

China tries to squeeze more out of a small trade deal with America

China wants to see American tariff cuts as a show of good faith

THE TRADE conflict between China and America has been a clash not just of giant economies but of utterly different public negotiating styles. In one corner are President Donald Trump’s tweets, in which he veers between heaping praise on China and declaring that he has pummelled it.

In the other is a Chinese bureaucracy that has stuck doggedly to the same message: tariffs must be removed for the two countries to reach a trade agreement. A mini-deal, hashed out last month, is shaping up to be a mini-test of their contrasting approaches.

The outline of the mini-deal—or, as Mr Trump put it, the “substantial phase-one deal”—seemed clear enough. China would buy American agricultural products, and America would hold back from slapping yet more tariffs on China.

With this basic agreement under their belts, the two combatants would move onto weightier topics such as China’s support for its strategic industries. But two problems have since emerged: one predictable, one not.

As was foreseeable at the time, the lack of detail about the mini-truce concealed big differences. Mr Trump said that trade talks had been “a love fest”, and that China would buy $40bn-50bn in farm goods from America, more than double the level before the trade war.

But the more he gloated, the more China appears to have seen an opening to push for more.

According to multiple reports, Chinese negotiators have demanded that to complete the mini-deal, America must remove some of its existing tariffs, not just refrain from new ones.

China’s gambit might just pay off. On November 4th a Trump administration official reportedly said that a phase-one deal between America and China could roll back the 15% tariff imposed on September 1st, on $112bn of goods.

China could be offering some sweeteners such as a purchase of liquefied natural gas, which Wilbur Ross, America’s commerce secretary, hinted at on November 5th. But the tariff reduction would be an American concession.

The previous stance of Robert Lighthizer, America’s chief trade negotiator, was that tariffs should remain until China proves that it is honouring whatever deal is struck.

The unpredictable complication was Chile’s big protests. Mr Trump and Xi Jinping, his Chinese counterpart, had hoped to seal their mini-deal on neutral ground at a summit of Asia-Pacific countries in Chile in mid-November. But the organisers have cancelled the summit.

That poses the question of where and when the leaders should meet, itself a matter of negotiation. Given Mr Trump’s tendency to improvise, China wants to be sure there is a political win on the table before it agrees to meet.

The Chinese may yet include more juicy titbits for American businesses as part of the mini-deal. But even if it is signed without a hitch, the trade war will be far from over. Hundreds of billions of dollars of Chinese exports would still be affected by tariffs and companies would still have to live with the uncertainty of the old ones coming back.

Mr Trump would still have the final word, and another one after that too.


by Egon von Greyerz

Something is rotten in the state of Denmark the world (from Shakespeare’s Hamlet).

In a world that cannot survive without incessant deficit spending, money printing and negative interest rates, there is clearly something very rotten. It is not only rotten but it stinks! Yes it stinks of lies, deceit and moral decadence.

So why doesn’t anyone stand up to tell the world where we are heading. Well, for the simple reason that no politician can tell the truth.

Because if they did, they wouldn’t be elected.

The principal purpose of any politician is to buy votes and to get votes you can never speak the truth.

Also, there are so many vested interests with unlimited rewards.

The moneymen who control the financial system have all to gain from creating false markets, false money and false interest rates.


The Roman philosopher and statesman Seneca said: “Veritas Nunquam Perit” (The Truth Never Perishes).

That might very well be true but it can be suppressed for a very long time as we are seeing now all around the world.

Let us first consider the biggest lie which is money. For 5,000 years, the only real money has been gold (and at times silver).

Whenever the financial system has deviated from that simple principle, by creating false money, it has ended in disaster for the world, whether that has been done with silver coins filled with zinc or copper or by just printing paper money.


And that is where we are heading now. A catastrophic course of events was triggered when Nixon closed the gold window on August 15th, 1971.

Since then global debt has exploded and all currencies have imploded.

Debt, derivatives and unfunded liabilities have gone from manageable amounts in 1971 to over $2 quadrillion today.

And every single currency has lost 97-99% in real terms.
As I mentioned last week, the world, the politicians and the UN are all focusing on the wrong problem.

The destruction of the world economy will have consequences of a magnitude that is exponentially greater than climate cycles.

We are now at the point when we will not be able to change the course of either of the two.

Climate is determined by very long cycles that humans have virtually zero influence on.

With regards the financial system, there was a time when it could have been saved.

But that time is long gone.

Now we just have to let it take its course which will be totally catastrophic for the world.

So why is no one seeing what is happening and why is no one standing up to say that the Emperor is totally naked?

The truth is very uncomfortable and painful but it does never perish.

It is an incontrovertible fact that virtually all the fiat money that is created by governments, central banks and commercial banks is totally worthless and therefore false.

If a government prints money out of thin air to cover deficit spending, that money has ZERO value since all the work required to create it was to press a button on a computer.

We also know that the money has zero value because no bank or central bank is prepared to pay interest on deposits.

Instead because money is worthless these bankers want to be paid to hold the money. It is really quite logical.

Why should you pay interest on money which has zero value.


And when a bank receives a $1,000 deposit and then lends out that same money ten times or more, that money is also worthless since it has cost $0 to issue the loans.

It is the same with a credit card company, or car financing, they all issue fake money created by the touch of a button.

It is this vicious cycle of money printing that has inflated asset bubbles to an extreme today.

We all know what happens when a bubble gets too big. IT POPS!

And when it pops, all the air that was inside the bubble just disappears.

For the ones who don’t understand what this means practically, let me explain.

Let us start with the asset bubbles.

When the global stock, property and other bubble asset markets pop, all these assets will lose at least 95%of their value in real terms.

The best way to measure real terms is obviously gold since that is the only money which has survived and maintained its purchasing power for thousands of years.

And if we look at the debt bubble, global debt is at least $270 trillion.

But when the debt bubble pops so will other liabilities like the $1.5 quadrillion of derivatives. So when the debt bubble pops, virtually all that fiat money becomes totally worthless.

No one can repay it and no one is willing to buy it.

I know that the above two paragraphs are a very simplified explanation of what will happen over coming years.

But hopefully it makes it easy to understand.

These events will obviously not happen in one go.

It will most probably start with stock markets first crashing which will put pressure on credit markets.

More QE will follow but that will only have a short term effect.

More crashes, more money printing, inflation, hyperinflation, credit defaults and bank defaults.

It will all unravel relatively quickly until their will be a deflationary implosion of most assets.

I outlined it briefly in my article last week called “Global Warning”.

We had the first clear signals from several major central banks that something was rotten in the world financial system already in August when the Fed, ECB and BOJ all declared that they would do what it takes to support the system. I wrote about this important event in my article from August 29th.


Then in September the Fed started overnight Repos of $75 billion increasing to $100 billion.

They also undertook 14 day Repos of $ 30 billion increasing to $60 billion.

Following on from that the Fed has now announced that they will start QE of $60 billion per month.

But we mustn’t call it QE according to the Fed. So let us just call it money printing because that is what it is.

The President of the Minneapolis Fed said: “This is not about changing the stance of monetary policy. This is about making sure markets are functioning. This is kind of just a plumbing issue.”

He is of course right, it is a plumbing issue.

But the problem is that the financial system is leaking like a sieve with no chance of plugging all the holes.

Between the end of 2017 and 2019 the Fed reduced its balance sheet by $700 billion from $4.5 trillion to $3.8 trillion.

As always, the Fed hasn’t got a clue.

They didn’t understand that there was no chance to take away the punch bowl from a system that couldn’t survive without a constant feed of more printed money.

The problem is that the system won’t survive with more money printing either.

Because you can never solve a debt problem with more debt.

So either way they are doomed.

So the Fed is now joining the ECB which will now start to print € 20 billion a month indefinitely.

The BOJ has of course never stopped printing.

They own 50% of all Japanese bonds and are supporting the stock market aggressively.

The BOJ balance sheet has gone up 8X since 1999 and is now Yen 560 trillion ($5 trillion).

Yes, the system is rotten and is now starting to smell.

The actions by the Fed in particular in the last few weeks smell of panic.

Is there a problem with JP Morgan, or Bank of America, or maybe the Fed is supporting the bankrupt Deutsche Bank?

We will probably soon find out where the biggest pressures are.

On top of the bank problems, corporate debt is getting riskier by the day.

The financing of companies like We Work and Merlin are clear signs of how dangerous this market has become.

The central banks are already fire fighting and so far very few people are aware of the fires.

But it is only a matter of time before these pressures in the financial system will spread like wildfires.


Investment markets will soon reflect the risks in the financial system.

Stock markets are likely to fall heavily this autumn and the precarious month of October isn’t over yet.

But potentially the fall might not happen until early next year.

But the risk is there today.

The dollar is extremely weak.

In spite of paying the highest interest of any major currency, the dollar is now weakening and is probably starting the final leg to ZERO.

Finally, the precious metals have merely just started to reflect the risks in the financial system.

The small correction that we have just seen is finishing.

But no use worrying about these small movements in the metals.

Physical gold and silver will soon start their journey to multiples of today’s prices.

But more importantly, they will be life savers as the financial system crumbles.

The perfect apple and the Cosmic Crisp

The biggest brand launch since the Pink Lady is changing the nature of the fruit

John Gapper

web_Cosmic Crisp apple launch

The boldest launch of a new apple in two decades will soon reach US supermarkets in the form of the Cosmic Crisp. With 12m trees already growing in the state of Washington and a $10m marketing budget, there has been nothing quite like it since the Pink Lady apple emerged from Australia.

“It is enormously crunchy and wipe-your-face juicy,” says Kathryn Grandy, director of marketing for Proprietary Variety Management, the US company in charge of launching the Cosmic Crisp. “Imagine the Possibilities”, is the tagline for the attempt by growers in the biggest apple-producing state in the US to rival Braeburns and Galas.

The new apple’s marketing budget is minuscule compared with the sum Apple spends on iPhones. But the Cosmic Crisp, so named because someone in a focus group compared the light spots on its glossy red skin to the night skies, is the latest effort by fruit farmers to capture the loyalty of consumers.

In these days of farmers’ markets and the rush to make products more authentic and craft-like, branding an apple feels like an odd strategy, even if the Cosmic Crisp is in most regards as natural as the Cox’s Orange Pippin, a British apple dating back to 1830. Both were crossed from other varieties, not genetically engineered.

But apple farmers have discovered that it pays to have their own brands. The Pink Lady, which was first trademarked in Australia in 1992, is based on the Cripps Pink, a variety created 20 years before. Most shoppers still know it as the former and will tolerate its higher price.

Branding gives growers some pricing power against supermarkets, rather than always being at the latter’s mercy. Although shoppers can distinguish varieties of apples (more than with plums or peaches), the common varieties are so readily available from growers around the world that retailers can pick the cheapest supplier.

The usefulness of a brand means that the WA38, a variety developed at Washington State University in 1997 and patented in 2014, is being launched as the Cosmic Crisp. The state’s farmers have replanted orchards from Red Delicious, a venerable apple that has lost popularity. “We have never had an apple of our own,” says Ms Grandy.

Like other new fruits, the WA38 is shielded by patents, and the university gains a royalty from the sale of every tree. But this is not the only way in which it is controlled. It is a managed variety — protected by trademarks as well as patents, with only selected farmers being licensed to grow it according to set standards.

The right to produce the Cosmic Crisp is confined to farmers in Washington until 2024 and may then be extended until 2034, when the patent on the fruit variety will run out. The state hopes that the Cosmic Crisp brand will by then have gained a value that outlasts its patents, as the Pink Lady did.

The cautionary tale is the Honeycrisp, released in 1991 by the University of Minnesota as an open variety that anyone could grow if they paid the royalty. The Honeycrisp is among the most popular US apples, and one of the varieties crossed to make the Cosmic Crisp, but its US patent protection expired in 2008 and it was not trademarked.

That has made universities and the farmers around them eager to manage and brand their most promising new varieties. The University of Minnesota has produced the SweeTango and Cornell University the SnapDragon. The brands now jostling for recognition include Pazazz, Rave, and the Midwest Apple Improvement Association’s Ludacrisp.

This competition is one reason for the size and speed of the Cosmic Crisp launch. Washington wants to use its farming capacity and marketing clout to develop the brand as fast as possible. This could both boost revenues while the variety is under patent and overpower the emerging rivals.

There is a danger that apples become so efficiently cultivated that they lose the fruit’s essence. The Cosmic Crisp is the ultimate expression of today’s approach, with its consistent appearance, balance of sweetness and tartness, and the crispness and juiciness characteristic of the modern apple.

The Cosmic Crisp also suits farmers. Its flesh does not bruise or turn brown easily and it can be stored for up to a year after harvesting so that it remains on supermarket shelves. The trees are grown from dwarfing rootstock that lets farmers fit more than 1,000 to an acre, lined up neatly in rows. Today’s apple orchards bear little resemblance to the image in people’s minds.

Farmers can hardly be blamed for responding to the market in this way — they have limited choice, given consumer preferences and the buying strength of supermarkets. The Cosmic Crisp is perfectly adapted to what retailers and shoppers want, wrapped in a trademark to make it profitable.

In the future, the consumer could tire of what has been made for him and her — the unnerving consistency of fruits that always taste the same, with a crispness that takes months to fade.

They may miss their old quests for apples in season, and the unpredictable pleasures of the first bite. Until then, here is the Cosmic Crisp.

Uncertainty, Uncertainly, Uncertainty

by: The Heisenberg
- It's been 10 days since I last chatted with readers here. Spoiler alert: There's still no light at the end of the tunnel for the global economy.

- On the bright side, equities have managed to surge back near all-time highs, and I'm happy to give you some granular color on that.

- I'll bracket that with a 30,000-foot view on the global outlook and a 10,000-foot view (if you will) from the executive suite stateside.
The last time I chatted with readers here was on - checks notes, because it seems like a lifetime ago - October 14, in a piece called "Stephanie Kelton For President."
In that post (which Stephanie tweeted with a blushing emoji), I noted that expectations for global growth have continued to deteriorate in the face of record-high policy uncertainty and the seemingly intractable trade war between the world's two largest economies.
After citing the latest forecast cuts from the IMF and the OECD, I drew your attention to the latest edition of BofA's FX and rates sentiment survey.
When asked to choose from a variety of statements regarding the prospects for the flagging global economy, the 57 fund managers (who together control more than $800 billion in AUM) overwhelmingly chose "The global uncertainty shock has been so persistent that lasting damage has been done and policy action will be too little, too late."
In the 10 days since, there's been no shortage of fresh data to support the contention that the global economy continues to decelerate. There's been some decent news sprinkled in with the bad, but no top-tier data that I'm aware of (and I'm aware of pretty much everything) suggests there's a light at the end of this tunnel.
Allow me to just run through a few of the more worrying points, in no particular order. Some of these readers will be well apprised of, and others maybe not so much.
Most obviously, China reported the slowest quarterly GDP growth in some three decades last week.
The world's second-largest economy expanded 6% in the third quarter, below expectations (consensus was 6.1%).
September activity data (released concurrently) was generally better than expected, but that's not saying much.
For example, industrial output rose 5.8% last month, which sounds good versus consensus (4.9%), but has to be considered in context - August's 4.4% print was a 17-year low.
The raft of Chinese data out last week also included September trade numbers which found exports falling 3.2% and imports plunging 8.5%.
That latter figure suggests domestic demand is flagging in the face of the trade tensions.
As I noted elsewhere last Friday, a larger Chinese surplus due to flagging imports is the worst-case scenario from a global perspective - it effectively means the country is exerting downward pressure on already subdued global demand.
At the same time, the stimulus out of Beijing continues to come in dribs and drabs. The PBoC injected $28 billion in medium-term funds last week ahead of the GDP numbers, but when the third vintage of the revamped loan prime rate was released on Monday, it was unchanged from September.
Beijing implemented a broad RRR cut last month, and targeted cuts on October 15 and November 15, ostensibly help. But the pace of stimulus (both monetary and fiscal) has been maddeningly slow for those betting on Beijing to rescue the global cycle.
One notable chart in the context of the above shows sales of sedans, minivans and SUVs in China falling for 15 of the last 16 months. Deep discounts prompted one month of respite over the summer, but that’s it.
Data out of other countries tells a similar story.
Bellwether South Korea, for instance, delivered another egregious first-20-day exports print on Monday.
Shipments in the first three weeks of October plunged 19.5% from the previous year, putting the country on track for an eleventh straight month of contracting exports.
Have a look at this:
With apologies for the hyperbole, that is just plain, old horrible. Earlier this month, the BoK cut rates for the second time this year and although the bank did an admirable job of getting out ahead of things when it came to preparing the market for what, hopefully, will be just a brief trip below zero for consumer prices, it is nevertheless disconcerting that South Korea is now in deflation for the first time in recorded history.
Moving on to Germany, most readers likely know the story there.
The world's fourth-largest economy almost surely entered a technical recession in the third quarter and thus far, Berlin has stuck to its guns when it comes to fiscal rectitude.
Rumblings about deficit-funded stimulus are getting louder, but so are the cries that by the time it comes, it will be too late.
On Thursday, flash PMIs for Germany betrayed a slight improvement from September, but the manufacturing slump is deep and entrenched.
Earlier this month, the German Economy Ministry slashed its growth outlook for 2020 to just 1% from 1.5% previously.
And I could go on.
Again, there are green shoots here and there (and if you ignore the employment subindexes, Thursday's Markit PMIs for the US weren't too bad), but the overall picture is clear. BofA described it in stark terms in a recent note.
To wit, from a piece out earlier this month:
Secular stagnation has now become our baseline. Growth is slowing in almost all major economies, in some cases from already low levels. Trade deals are only likely to avoid further tariff increases, at least for now, while keeping the tariffs of the last two years in place. Political uncertainty in the US is likely to increase ahead of the elections next year. We see increasing evidence that monetary policy has become ineffective, accumulating negative side effects. Fiscal policy is not coming to the rescue, and in any case, very few major economies could afford it. Structural reforms remain a theoretical and unpopular concept for most governments. Having to fight increasing populism, mainstream governments have often become reluctant to push for much needed reforms. Tight labor markets, in any case, suggest capacity constraints. Increasing wages without inflation also point to risks for profits.
In the first linked post above (the Kelton piece), I suggested that MMT-like policies are almost surely in the offing, as they are popular (in one variant or another) among populists on both sides of the political spectrum. Right-wing populists aren't likely to embrace Modern Monetary Theory by name, but they will (and, indeed, they already have in the US) in practice.
Of course, none of this has stopped US equities from scaling close to new highs in October.
If you wanted to explain the mid-month "melt-up" in US stocks highlighted in the visual below, it wouldn't be very difficult.
For weeks, folks had been "long" worst-case scenario expressions and "short" good news, a thesis which eventually collided head-on with two macro catalysts in the "Phase One" Sino-US trade "deal" and unexpected progress towards a Brexit agreement.
Leaving aside the nebulous nature of the former and the fact that the latter is still hanging in the balance (Boris Johnson is now angling for a December 12 election in the event he can't get his Brexit deal crammed through by November 6), movement on both trade and Brexit hit amid heavily lopsided positioning (dealers had hedged what they were short to clients in terms of crash protection).
"The dealer 'crash' hedge purge as the flow catalyst into the monthly 'Gamma Event' that is expiration has been a second-order slingshot for stocks over the past week-and-a-half," Nomura's Charlie McElligott wrote late last week, adding the following crucial color on the mechanical catalysts behind the move:
This multi-day rebalancing out of front and into the 2nd contract by Wednesday—on top of Dealers puking a meaningful amount of the VIX upside / VIX futures exposure which they had to buy in order to hedge the “Oct Call Wing” buyer flow that they were short to clients and each other—is the real “how and why” of this rally and the stickiness of Stocks holding “higher,” despite the constant complaints from those who believe we should be lower for “fundamental” reasons.
That's from a note dated Friday, October 18 (I emphasize that so readers have a reference point for his mention of "Wednesday" and "the past week-and-a-half").
There's a tactical trade coming out of that, which I don't want to delve into in any great detail for fear of encouraging readers to attempt things they probably have no business attempting.
But, in the interest of adding a bit of additional color to the above, I will give you a brief quote from McElligott's latest note (dated Wednesday) which captures the thrust of it:

As I referenced last week with the VIX “knee-capping” we’d been calling-for into expiry (which then drove a massive steepening of the VIX futures curve, as longer-dated stays “bid” against VIX ETN rebalancers SMASHING front-month thx to the contract roll), the trick is that this ETN rebalancing impact on “lower VIX into expiry / settlement” then marks a “local low” which tends to see a 1) higher VIX- and 2) VIX curve flattening- (or even inversion) impulse thereafter.
Meanwhile, equities are now pinned, as it were.
Trudging out of the deep weeds and panning quickly back to a 10,000-foot view (but not quite to the 30,000-foot level we started from here at the outset), CEO confidence in the US has plunged to crisis-era levels (left pane below).
That, in turn, has weighed heavily on cash spending, which dove double-digits in the second quarter of 2019, after hitting records the previous year.
Behind plunging executive confidence is rampant uncertainty, attributable in part to trade tensions.
Here's Goldman (NYSE:GS), from a note dated October 17:
Companies spend less cash when policy uncertainty is high. Historically, growth in aggregate S&P 500 cash spending has been weaker during periods of high policy uncertainty. The combination of an ongoing trade conflict and next year’s US presidential election will likely result in lingering uncertainty.
The outlook for cash spending isn't great, although it's not terrible either. The year-ahead numbers are, of course, just projections, but the rationale behind them (i.e., the self-evident notion that more uncertainty makes management teams less willing to spend) and the fact that the 2019 estimates reflect some numbers that are already on the board (e.g., the steep drop-off in Q2 shown in Exhibit 3 above) make them well worth highlighting:
We estimate cash spending will fall by 6% during 2019 before rising by a modest 2% during 2020. S&P 500 cash spending rose by 5% during 1Q, but plunged by 13% yoy during 2Q. During 2019, the decline in spending will be driven by a 20% drop in cash M&A and a 15% fall in buybacks. In 2020, we expect modest growth in capex (+3%), R&D (+6%), dividends (+5%), and cash M&A (+6%) will be partially offset by a 5% decline in share repurchases.
Note that Goldman sees gross buybacks falling 5% in 2020. The bank cites dramatically lower cash balances, sluggish earnings growth and political scrutiny of corporate cash usage as factors likely to weigh on management teams’ capacity and willingness to buy back shares.
Obviously, buybacks have supported US equities over the past several years. Good people can debate the extent to which that support has been responsible for rescuing the market during acute downturns and smart investors can argue about how much share repurchases actually matter when it comes to inflating corporate bottom lines and thereby share prices. What isn't debatable, though, is that buybacks do have an impact and they are set to wane going forward.
Taken as a whole, all of the above suggests that from a macro perspective, the only three words that matter are "uncertainty," "uncertainty" and "uncertainty."
And don't let anyone try to use the old "there's always uncertainty" line on you, if the goal is to somehow trivialize just how indeterminate things are. For one thing, many of the readily accessible non-market-based measures of uncertainty at our disposal are sitting at or near all-time highs. The EPU is one example (there all manner of variations which you can access here).
(Goldman, EPU)
Beyond that, common sense tells you that these are particularly trying times. Just watching the news is enough to stress the average investor out. Imagine if you were a CEO.
In addition to the trade frictions, the ongoing impeachment inquiry in D.C. is now highly relevant for investors and corporate America. Donald Trump will almost surely be impeached by the House. That is just an objective assessment. If you don't believe pundits and historians or you can't do the math yourself, just ask the crowd (i.e., just look it up on PredicIt here).
The real problem, though, is that the Syria debacle raises the odds of a Senate conviction from zero previously to a number higher than zero, even if that number is still infinitesimal.
When you throw in the fact that Elizabeth Warren is just as likely as not to beat out Joe Biden for the Democratic nomination, the level of political angst among professional investors, and certainty among CEOs and CFOs, is very elevated, even if the average investor is more insulated from all of this by virtue of not having as much to lose.
Although nobody knows what's coming, we do know what people would like to see to alleviate some of their concerns.
For one thing, the trade war needs to end - like, yesterday. As is the case with Brexit, the market is exhausted with trade headlines.
And yet, it appears as though the Trump administration and China are set to do this dance for years as multiple "phases" of a prospective agreement materialize at unpredictable intervals.
Just Thursday, Bloomberg reported that China may be willing to buy $20 billion in US farm goods during year one, as part of "Phase One," but will only hit the $40 to $50 billion figure cited by President Trump in year two, under Phase 2 (or 3), when tariff relief is expected.
Underscoring the extent to which this has become something of a hamster wheel is the following chart which shows that if China does ramp farm purchases back up to $20 billion, that will only get us back to levels seen in 2017, before the trade war started. So, all of this for what, exactly?
The other thing that has to happen for the outlook to improve materially is that somebody (where that means either China or Germany) needs to step on the fiscal gas pedal.
As outlined above, it seems like we are some way away from seeing Beijing and/or Berlin embark on an aggressive, "kitchen sink" stimulus push.
The longer that takes, the more vulnerable the world will be to negative headlines, especially those with a direct connection to the global economy.
And with that, I'll leave you with two passages and two charts from the October edition of BofA's closely-watched Global Fund Manager Survey. To wit:

Ongoing bearishness about the prospect of a trade war resolution: note 43% of FMS investors think the US-China trade war is the new normal vs. 36% who think we will see a resolution before the 2020 US Presidential election. 

Aside from the end of the trade war (#1 FMS “tail risk”) FMS investors think a German fiscal stimulus package, a 50bp cut by the Fed or a Chinese infrastructure package would be the most bullish for risk assets over the next 6 months.