August 4, 2015 Patrick Oliver-Kelley

US Zone

The Fed is sticking to its rate hike plan in 2015. After six years of nearly 8.5 million jobs lost, Americans are now enjoying a nearly unprecedented level of job security. Unemployment aid is lowest in nearly 42 years and hiring is progressing at a steady pace. The dollar remains stubbornly strong and is getting stronger. The Fed’s desire to start interest rate normalization is spreading stress throughout the global financial system, because monetary policy in the rest of the world is moving in the opposite direction. It is virtually unprecedented for the Fed to raise rates when profit growth is non-existent.

Asia Zone

China’s real problem is that all of its turmoil is happening in the midst of a “triple bubble.” China is in the midst of the third-biggest credit bubble of all time, the largest investment bubble (proxy by the investment share of GDP) and its second-biggest real-estate bubble, This is against a backdrop of near record producer price deflation, near record low growth in bank deposits, foreign exchange outflows (the main source of external liquidity), and falling house prices (with property accounting for the majority of household wealth). China’s planned reforms are ambitious and success is not assumed. Its activity in the South China Sea is too, nervous making. China alone seems to be pleased.


Growth rates in developed and emerging economies are converging. Emerging will be a better regulated banking system. We are moving toward energy abundance by the development of shale exploitation. We are shifting to a more inflationary environment. Public balance sheets are bloated and debt is high. Few economies are capable of fending off recessions. The shale miracle is positive and negative: it is a net positive only if the savings are converted into consumption. Geopolitical conflicts have made little concern. This is an inherent risk. Markets, therefore, have a greater risk of flash crashes, volatility and vacuums.

Evidence that another wave of global deflationary pressure is gathering momentum can be seen in many assets outside of stocks, such as corporate credit, where spreads are widening and emerging market currencies, which continue their downtrend. Japan’s retail sales slid again in June, making the third fall this year. This only adds to manufacturers’ problems caused by soft exports. Expect Japan’s economy to contract in the second quarter.
British GDP growth accelerated in the second quarter, growing by .7% in the second quarter, now exceeding pre-crisis levels.


There is a deepening risk of a North South polarization. The Greek farce of late is just one of many potential threats. Throw in the possible exit of Britain from the European Union makes for a bitter stew. But the IMF reported that the Spanish economy is expanding and is set to grow over 3% this year, but the IMF warned that vulnerabilities remain due to structural problems.

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