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Nikkei 225 closes higher by 0.70% at 21,419.23

  
  Analysis
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Japanese stocks get a boost from more stimulus talk

Nikkei 27-05
The government is reportedly going to be pouring another ¥100 trillion at least in a new round of stimulus package, and that is helping to give the Nikkei a bit of a lift today.
The mood elsewhere in the region is more mixed with the Hang Seng down by 1.0% and the Shanghai Composite down by 0.2%, with the former dragged lower amid the clash between protesters and the police in Hong Kong.
US futures are keeping higher by about 0.6% though, but after the setback yesterday, major currencies are keeping on their toes in response to start European trading.
The dollar is a little firmer across the board, but nothing too overwhelming for now. AUD/USD is down 0.2% to 0.6640 while EUR/USD is also lower by 0.2% to 1.0960.

Fiscal deficit feared to rise to 7.9%

  
Analysis, Economy
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With the government’s Rs 20 lakh crore stimulus package, the country’s fiscal deficit is likely to be more than double to 7.9 per cent in the current financial year, according to an SBI research report.

The report had earlier estimated the fiscal deficit to be 3.5 per cent of GDP this fiscal.

The government has announced a cumulative package of Rs 20 lakh crore, which is nearly 10 per cent of GDP to provide relief to various segments of the coronavirus-hit economy.

“After taking into account cash outflow of these measures as well as the previous and the recent excise duty hike and DA freeze (amounting to 0.8 per cent of GDP), we now revise our baseline fiscal deficit (excluding extra budgetary resources (EBR)) to 7.9 per cent of the revised GDP in FY21 from 3.5 per cent earlier, owing to lower revenues and higher expenditure against the backdrop of Covid-19 pandemic,” the report said.

Coronavirus – Japan’s PM Abe on Saturday promises unprecedented economic stimulus

  
  Analysis
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Abe said measures will include fiscal and monetary stimulus alongside tax breaks for companies

  • details have not been finalized
  • package will be rolled out in an extra budget in 10 days
  • size of the package will be greater than that compiled in response to the global financial crisis (total 57 trillion yen) said Abe
Abe spoke during a nationally televised news conference
  • “I want to be straightforward”
  • “We are in a critical stage. We need to be ready for a long-term battle”
  • “The pandemic is inflicting extremely big damage to Japan’s economy”
  • “We’ll deploy a huge, powerful package that will include a full range of fiscal, monetary and tax measures.”
Abe said measures will include fiscal and monetary stimulus alongside tax breaks for companies

Morgan Stanley expects FOMC to cut 75bps(50 on March 18, 25 in April)

  
  Analysis
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Morgan Stanley has slashed their US 2020 GDP growth forecast to 1.5%

  • from 1.8% previously

Projections for the Fed:

  • 50 bps rate cut in March
  • 25bps in April

MS add that if recession:

  • Fed to cut to zero
  • & restart QE
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PS. I am seeing (again) the ‘central bank rate cut is ineffective therefore they won’t and we need fiscal stimulus instead’ comments.
This is, unfortunately, a very common mistake that is made.
I posted this ahead of the RBA meeting last week (before the RBA cut its cash rate) , just change around the names:
  • Some folks will argue rate cuts will be ineffective against the virus, which is the wrong argument, of course rate cuts won’t cure a virus! Sheesh. The central bank move, if it comes,  will be predicated on taking action to avert too much economic harm. Some folks will argue that a rate cut will be ineffective for this, that government stimulus (fiscal) would be better, and they have a fair point … but you have to remember a rate cut is the tool available to the central bank, they can’t provide fiscal stimulus. “The RBA should stand firm and force the government to act” is another argument. Unfortunately this is no time for dick swinging contests (its a male-dominated sphere) and the RBA will not play this game.

Assume Nothing; Question Everything; Verify All

  
  Uncategorized
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“The market can remain irrational longer than you can remain solvent.”
–Not John Maynard Keynes

I am reading a pretty good book by an industry expert that (like so many others) is a semi-autobiographical mix of business and personal history. The introduction to the book is a broad, throat-clearing exercise, outside of their expertise.

And I begin to notice a few errors.

Little things at first: dates, market levels, valuations. The narrative history about the GFC. It jars. I got a sense a publisher/editor type scanned the book and declared “This needs an intro.” Thus, a section gets written without the same love as the main (more interesting) story. As far as I can tell, the heart of the book (which is outside my area of expertise) is error-free. But these small misstatements are revealing about the industry: Publishers have morphed into mere copy shops, shadows of their former selves, no longer bothering with editing, fact-checking, etc. They have become glorified, spell-checking, xerox machines.

The errors are about things within my area(s) of expertise. It gnaws at me. So much so that when I come to the famous Lord Keynes quote above within the context of this throwaway chapter, it bothers me. This forces me to question whether it too is wrong.

Full disclosure: I have used that quote too many times to count. Mostly verbally, sometimes on social media, occasionally in print. Never once was I self-motivated to see if it was truly written by Keynes.1 My assumption was that it was Keynes, simply because every utterance of his has been poured over and annotated since the day they were made.

We have all used that line because it is a brilliant insight into the madness of markets, a reveal of human psychology, and the ugly reality that you can be right and still lose money. Of course it was by Keynes! Who else is wise enough could to utter such pithy insight about the human condition as manifest in capital markets?

Despite everyone knowing this was John Maynard Keynes, I wanted to confirm these were really his  words. I cannot say why it felt wrong to me, it just did. Read enough media, books, news, etc. and your Spidey-sense will tingle about these things. (more…)

An economist’s XMAS

  
Analysis, Education
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If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three.’ As Winston Churchill noted, economists rarely agree on anything. And the topic of Christmas should be no different. Here is our guide to the macroeconomics of Christmas:

 

Keynesians – place a lot of emphasis on the ‘macro stabilization’ properties of Christmas. Ideally, they would vary the number of Christmases each year according to the state of the economy. This is best summarized by Paul Krugman’s depression paper ‘Wish it could be Christmas every day’, in which he also acknowledges his love of British glam rock. The Keynesians would like to see a larger role for the state, including publically-funded Santas.

Austrians – Believe Christmas is dangerous because it inevitably ends with a nasty January hangover. Also worry about the moral hazard implications of gift-giving and the propensity for overinvestment in Christmas decorations. Reject the idea of ‘public’ holidays, arguing the free market would lead to a better outcome.
Monetarists – Convinced they are the only ones who know how Christmas ‘really works’ and quickly become frustrated with other economists’ lack of understanding. Their thinking can be reduced to a simple identity, though this is vulnerable to shifts in the velocity of Santa’s circulation. Hardcore monetarists believe in the tight control of chocolate coins to prevent the hyper-inflation of waist lines and the hyper-activity of small children. (more…)

John S. Wasik,Keynes’s Way to Wealth-Book Review

  
  Education
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John Maynard Keynes was not only a renowned economist, he was an investor. He managed his own money as well as that of King’s College, his friends and family, and insurance companies. As John C. Bogle writes in his introduction to the book, “His spectacular success showed not only his passion for making money, but his growing aversion to losing it. As someone who had gained two fortunes through his trading prowess and lost them through his hubris, Keynes is a stellar example of how an investor can learn, fall on his face more than once, and still come out ahead.” (p. xxxiv)

John S. Wasik explores this investing journey in Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist(McGraw-Hill, 2014). Let me start with the rewards of the journey: what Keynes did with his wealth. He bought art as well as rare books and manuscripts. The Keynes collection of rare books, bequeathed to King’s College in 1946, is, according to the college’s web site, “especially strong in editions of Hume, Newton and Locke, and in sixteenth and seventeenth century literature. About 1300 books in this collection have been catalogued on the online catalogue. … Keynes’s collection of manuscripts by Newton, Bentham, John Stuart Mill, etc., is housed in the Modern Archive Centre.” A man after my own heart, but with a bigger budget.

Keynes was a speculator. According to his own definition, “The essential characteristic of speculation … is superior knowledge. We do not mean by this the investment’s actual future yield … we mean the expected probability of the yield. The probability depends upon the degree of knowledge in a sense, therefore it’s subjective. If we regard speculation as a reasoned effort to gauge the future from present known data, it may be said to form the reins of all intelligent investing.” (p. 8) (more…)

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