Regime Change(s) in Financial Markets and Politics by LST
The phrase ‘regime change’ appears apt when describing the present state of financial markets and politics…worldwide. A few considerations that come to mind:
Regime Change : Financial Markets
- The Federal Reserve / Janet Yellen would like to lead the US and the world out of the post 2008 monetary maneuvers (e.g. QE, ZIRP, NIRP, etc). The Fed’s wishes have been complicated by the BOJ, ECB, market reactions to the BOJ, ECB.. and other forces.Monetary regime change (?)
- The on-going construction and related credit bust in China remain on-going…coupled with counter-cyclical policies e.g. tax cuts, market liberalization, etc.Forced/necessary/desirable economic rebalancing, i.e. regime change (?)
- Record level of NIRP-related debt outstanding, as well as record-breaking negative interest rates. FX considerations aside, the marginal non-Central Bank buyer may at some point question the notion of providing negative-carry debt capital to governments that refuse to structurally reform. Not to mention what to make of insurers, pensions, etc. that require payouts.
- Calls for banning cash by… non-law enforcement figures, such as Larry Summers, Mario Draghi, etc.
- US housing in NYC/SF/DC face downside risks due to notable affordability problems. Housing in rest of the USA, and demographic drivers,look reasonably healthy. Real estate is local again? Regime change
- Private tech/VC valuations marked down, but deal volumes remain at same (if not higher) levels versus YoY.
- “only 1 of the 10 largest banks in Texas survived” re: late 1980s …something to think about, especially coupled with fact that banking/credit/employment related implications of energy bust have LAGGING EFFECT. (I’m not necessarily fixated on Texas per se…it’s a case study/analogy on causation).
- “Trafigura estimates that the world’s 10 top commodities hedge funds now manage $10 billion altogether, a fifth of what they did in 2008.” Yes, as the joke “what is down 80% can go down 90%, as the joke what is a stock that has been cut in half?
- Wages are rising. Signs are widespread. This is a significant paradigm shift… concurrently, usage of automation/robotics something to watch.
- The market has been experiencing the ‘other side’ of a bear market in recent weeks. ‘Leadership’ has differed from prior years.
Regime Change – Politics
- Rise of Nationalism. Pretty much everywhere.
- Trump is winning. Bernie Sanders Super Tuesday results disappointing. The loudest Trump critics appear to misunderstand him and his fans. No matter, both point to regime change. Note that “regime change” in Asia and Europe before the modern era, were often accompanied by executions.
- Supreme Court, replacement for Antonin Scalia.
- Regulatory enforcement is rising (after decade-low levels of white collar fraud enforcements through 2013/2014? e.g. Valeant Pharmaceuticals. Regime change.
- Europe – Brexit, Spain (Visca Catalunya), threats to Schengen, etc.
- China – Xi regime gives off the impression of a more nationalistic tone.
The above lead me to believe that we are transitioning from one state to another… methinks the ‘regime change’ may resemble the transition from the dot com bubble/bust to housing bubble/bust. We’re somewhere in between two different regimes.