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Grey Swans Rising - All 6 Of Goldman's Global Risk Indices Are Worsening
Despite every effort by The Fed to convince the world that everything is awesome, it's not. From China growth risks to concerns about tightening financial conditions, Goldman warns so-called 'grey swan' fears are rising with Brexit, Trumpe elected, widening terrorist threats, and increased protectionism the most impactful.
Many of the risks that sprung up in 2015, as Goldman details, look set to continue in 2016 (or worsen)...
Greece has avoided the worst, but challenges remain. Greece and its official creditors agreed on a new adjustment program and financial support package in July, and Alexis Tsipras was re-elected as Prime Minister in snap September elections. The inflow of liquidity from initial financial disbursements has staved off the immediate threat of default and/or exit from the Euro area, but implementation of necessary governance and economic reforms remains challenging. Both within and outside Greece, much skepticism remains about the economic and political viability of the proposed adjustment, against the background of a renewed downturn in the Greek economy triggered by the mid-year threat of Grexit. Parliamentary support for adjustment measures has been diminishing and austerity and reform fatigue is intense among the Greek public.
Concerns about extreme Chinese equity market volatility have given way to growth worries. A series of administrative measures launched over the summer calmed the Chinese equity market, allowing for a recovery in China A- and H-share markets from their Q3 lows. These measures included: tightening rules on margin trading by lowering the loan-to-value (LTV) ratios for brokers’ financing and by restricting OTC leverage products such as umbrella trusts; suspending domestic IPOs (resumed in November); banning major shareholders from selling their shares; restricting trading on index futures, and directly purchasing stocks in the secondary market (which amounted to an estimated RMB1.8tn from June to November). However, while equity market volatility has diminished, lingering concerns about policy implementation difficulties against a broadly less friendly backdrop for economic growth have left China risks front and center for many market participants.
Tensions between Russia and NATO members have persisted and arguably escalated. While fighting in eastern Ukraine has continued with varying levels of intensity, Russia has shifted its focus to the conflict in Syria, launching airstrikes there at the end of September. Despite a common pursuit with Western powers of combatting the Islamic State, the US and others have criticized the Kremlin’s approach for targeting primarily Syrian rebels. More recently, tensions flared after Turkey shot down a Russian military aircraft accused of breaching Turkish airspace on November 24. News that NATO had extended a membership invitation to Montenegro in early December also prompted a negative reaction from Russian officials.
Cybersecurity issues continue to affect government agencies and private companies alike. US officials revealed in July that data breaches of Office of Personnel Management’s (OPM) computer networks had exposed security clearance data and other personal information for over 20 million people (from a prior estimate of 4.2 million). Other notable cyber incidents in 2H2015 included a breach of the information services company Experian, which compromised personal data of an estimated 15 million T-Mobile customers. However, cyber concerns gave way somewhat in the public eye to a renewed focus on “conventional” threats after high-profile terrorist attacks in Beirut, Paris, and San Bernardino (California), among others.
Rate volatility has declined, but unjustifiably so. Volatility of US short- and long-dated interest rates remained elevated through mid-November. But, over the past month both realized and implied vol for maturities longer than 2-years has sharply declined, which we don’t think is warranted and is unusual in a rate hiking cycle.
In retrospect, two key grey swans missed: SNB cap abolished and the magnitude of the European refugee influx.
And what to look for in 2016:
- Risk of relapse in Greece. Unpopular changes to the Greek pension system may undermine the government’s parliamentary majority, leading to another round of political uncertainty and delays in the disbursement of official financial support. However, Greece is unlikely to become such a central focus again because (1) markets have become less concerned about contagion, (2) the immediate cash flow needs of the Greek government have diminished, and (3) Greece’s geographically and politically crucial role in the European refugee crisis has reduced the appetite to allow deeper economic stress in the country.
- Ongoing concerns about the intersection of Chinese policy, politics, and growth, and CNY-related risks.
- Continuation of tensions between Russia and the West, from one-off incidents or strategic differences.
- Debate in the public and private sphere over the treatment of encryption software in combatting terrorism.
- Increased rate volatility, at least until more clarity on the pace and predictability of further US rate hikes emerges.
- Other potential grey swans: (1) Brexit, (2) Trump elected, (3) widening terrorist threat, (4) a rise in protectionism.
Source: Goldman Sachs
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The other thing to watch in 2016 is the massive decline in consumption and sales getting decimated. We may have crossed the Rubicon of people to buy shit they don't need, as was exposed with iPhone 6 sales.
It won't be Russia that brings down the $, it won't be Brazil and it won't be China. In fact, it will be none of the BRICS.
It will be the kabbalah when they're through sucking the blood. And it will be just before they invade EVERYTHING
Yep, they know they need something larger than WTC 1 & 2 crashing down to distract the sheeple.
Something much larger to captivate and astonish the masses.
Something BIG! Something Really, really BIG!
Maybe 1st Contact? Then all out war... or visa versa?
Then again, maybe an incoming astroid... All of these senarios are not good, but neither is our entire situation globally.
It was a good ride though.
Worldwide coordinated "ISIS" attack. Bet.
ZH declares "open season" on grey and black swans. Good.
Would monetary velocity be a leading or trailing indicator of this?
I had a left winger the other day ask me, point blank, "What causes poverty?"
I couldn't say my actual reasoning because it is too controversial. Overpopulation.
Greed causes poverty
Greed properly directed causes prosperity.
Not for the non-greedy. If I'm only interested in hard work and not greed, I will be poor. Engineers and bankers.
Sigh. I'm not having this discussion now. Maybe later, but not now.
If there were 1 billion people, there would be 7 times more resources for everyone.
But there would still be one group of people controlling 99% of those resources. Your prosperity depends on their generosity
The question itself, what causes poverty, is an obnoxious question, because it seems to suggest that there is one cause. This is clearly not the case with a societal, abstract issue like poverty.
It literally comes down to greed. Read the bible. Might sound like a stupid idea but there is a reason usury was outlawed. I think in those simpler times (when there were fewer people) things were a lot more obvious so it was easy to see what was going on.
Jesus himself said, "The poor we have always with us..." But what did He know? I sure wish He was here on ZH.
I wish the zombie invasion of Jerusalem was here on ZH (matth. 27:52) It's a highlight in that book of folklore.
The world has many major problems, from soil exhaustion to pathogen virility, economic collapse, nuclear war, pollution, declining biodiversity and a dozen more.
But overpopulation dwarfs all the rest. By a country mile.
Poverty was widespread, and indeed the norm, prior to the 20th century, when there were but 1/7th of the total amount of people in the world that are alive today.
100% true.
However, it seems apparent to me, as well as most ZH'ers, that the party is ending, and way too many people have been invited as a result of the party we had in the 20th century. And by party I mean the oil boom that resulted in us having so many people in the first place.
In any event, I believe poverty is a combination of overpopulation and misallocation of resources.
Well, you could always dis-invite yourself and start the process by leading by example...
Put your money where your mouth is pal...
Simple answer: the ruling-class causes poverty. Through control of monetary systems and "programs for the social good". The War on Poverty may be the #1 cause of poverty.
Without a parasitical ruling-class leeching off of society, all individuals will enjoy much greater prosperity.
As for the overpopulation "problem", you can help with that....jump off a cliff, right now. Problem solved.
"A series of administrative measures launched over the summer calmed the Chinese equity market, allowing for a recovery in China A- and H-share markets"
So banning short selling, forcing large institutions to buy and disappearing traders and entire brokerage houses is an "administrative measure"?
I guess Pol Pot merely instituted some measures to "right-size" his country's population. How very progressive.
The world's economic direction is awesome, if you happen to be an agent of The Great Red Dragon. For all the rest of us non-sociopaths, it sucks.
A Trump pres would be bullish for the dollar, re repatriation and self-respect.
If Trump were true to his word and actually, genuinely, made peace with Russia then all the other problems start to melt away.
Here’s the thing, if in 2016 you decide to torch your car (next to your house) for insurance checks all around, make sure your bills are all up to date. The first thing Authorities do is pull a credit report.
If you have good credit they’ll let you drive-thru. Bad credit, you’ll be examined.
I've been reading about these things for years now, something is always 'collapsing'. Every new year is going to be 'THE' year of the global economic collapse. There's always going to be some data that can be interpreted in which ever way anyone wants.
Not sure there's going to be a collapse. I think it's just going to be a long slow grind until world war breaks out. I see nothing which is going to change the direction the world is headed.