Last week's market confusion inspires a reflection on Jimi Hendrix' famous lyrics:
Purple haze all around Dont know if Im comin up or down Am I happy or in misery?
The G20 has pledged to keep the morphine drip flowing to the global
economy, meaning that the dollar carry trade will continue, propelling
the reflation rally in emerging markets we've seen since March.
Inspired by new input from the sharp pencils at EFG-Hermes, The Current
Account has resumed a long effort to tabulate various debts and their
maturities for all UAE issuers. It's by no means complete yet, but you
can check out the ongoing results -- and feel free to submit additions
-- here.
There's been somewhat of a brouhaha in recent weeks over Dubai World's
disclosure that it has consolidated liabilities of $60 billion. I'm
paraphrasing, but the reaction has run something along the lines of:
SIXTY BILLION DOLLARS!!! JUMPING JEHOSAPHAT THAT'S A LOT OF MONEY!!!
MAN THE LIFEBOATS, THE ENTIRE ECONOMY MUST BE GOING DOWN!!! HOW MUCH
MORE IS HIDDEN BELOW THE WATERLINE???
It has been suggested in some quarters that readers may be interested in hearing more about what David Dollar, the
US Treasury's official emissary to China, said while at the World
Economic Forum's meeting last week in Dalian. I apologise for not
writing a post on Mr Dollar's important comments earlier.
Here's what Mr Dollar said in a session entitled "Recalibrating Global Demand:"
The optimism over an Asian recovery (though perhaps misplaced) is building as investors return from summer holidays and funds are flowing heavily again into emerging markets.
But major questions remain over the real engine behind Asian growth --
the US. President Obama will be making an address today to Wall Street
as First Shareholder and Bondholder.
Getting the government out of the US private sector may be a
prerequisite to re-establishing the dynamism of the world's largest
economy.
The optimistic belief that an Asian recovery is leading the global
economy out of recession is predicated on a orderly unwinding of the
imbalances that characterised the world trade and investment for the
past several decades. Put more succinctly, the West is now saving and Asia is now borrowing,
reversing what was the case. US consumers and companies, chastened by
their chronic credit binging, are now having to make up for lost
thrift. Asians, having saved too much for too long, are now starting to
"leverage up."
There isn't a huge amount of representation here in Dalian from
the Gulf, but one voice that was loud and strong was that of Sheikh
Mohammed al Khalifa, CEO of Bahrain's Economic Development Board.
Regular readers may recall that we caught up with Sheikh Mohammed at the WEF's Middle East meeting on the Dead Sea back in May. Sheikh Mohammed joined a panel on the global economic outlook yesterday,
becoming the defacto representative here for the Gulf, a region that he
noted had a combined GDP nearly the size of India despite having a much
smaller population.
Listening to panellists here in Dalian, one can easily get confused
over whether we face a risk of inflation or a risk of deflation. Inflation hawks
say massive borrowing and spending poses a risk of dollar inflation,
while bears say the de-leveraging and de-stocking taking place makes it
more likely that economies will suffer from deflation.
Here's some examples so far in no particular order:
Here in Dalian we've
heard a string of Chinese officials and academics pour cold water on
China's recovery, characterising it as an unsustainable sugar rush
caused by a massive scoop of government lucre. The poo-poohing
culminated last night when China's premier, Wen Jiabao, told participants that "China's economic rebound is unstable, unbalanced and fragmented."
Good morning from Dalian, where I'm attending the World Economic
Forum's Annual Meeting of the New Champions. Is Moody's trying to warn
us that AAA ratings are in trouble? My inbox this morning is full of
reports from the ratings agency explaining how the might can fall. This
doesn't apparently apply to the bigest source of AAA consternation, the
increasingly indebted US government.
