China is in the eye of an almost perfect storm based on 4 factors:  real estate sector crisis; supply chain disruptions (e.g. ports to producer margins); the electricity power crisis;  and the move from wild west capitalism to Common Prosperity.  The short term hit to growth will produce the first contraction in China's Q3 GDP in most peoples' living memory.  But this does not herald the systemic collapse of China's economy or political system. It is a transition to a 4-5% secular rate of growth - typical of a middle income economy with unresolved structural issues.

German election results!  The big winners are the SPD ((Social Democrats) & Die Gruenen (the Greens) and the big loser is the CDU.  So which parties will rule?  how does the vote translate into Bundestag seats?   How are coalitions negotiated in Germany. What will be the policies of the new German government?  How does the effect economies and markets in Germany and Europe? 

Evergrande, China Real Estate, the Economy and Common Prosperity! 
Evergrande is a perfect Quantum Disruption.  The effects will flow through to the economy, deleveraging and the replacement of the current Chinese housing model by that clearly stipulated in President Xi Jinping's new ideology of Common Prosperity. 

It was a known-known that China was way over leveraged and saddled with a legacy of unproductive assets..  But we were told it didn't matter because the Chinese owed the debts to themselves.  Such comfortable, dumb. consensus forecasts have now been disrupted by a single Quantum event:  Evergrande going bust.   The housing market was a part of this architecture of inefficiency and inequality. Tycoons and corrupt officials reaped economic rents along the way. People buying houses to dwell in lost out and paid the economic rents to the rich. Inequality blossomed.   It's over!

The short term cost will be recession.  The long term benefit is affordable housing, less wealth and income inequality and a more efficient economy.
However, most international investors are on the losing side of this manichaean battle....and will suffer accordingly.

Geopolitical Stability & AUKUS (the Australian nuclear sub deal). This is part 1 of 2 broadcasts analysing recent events that change things for China and the world.  The second, next, deals with the Chinese and HK housing sectors. 

German Elections (Sept 26) - How do they work?  What will the outcome mean for Germany & Europe?  
What is most likely coalition to succeed the incumbent CDU and CSU? Who will be Kanzler? 
How will policy change. In what ways will this impact the EU?

That & more.....

Global Supply Chain Disruption - A Dog's View
Disruption of supply chains will have significant effects on current global growth, inflation and equity margins. But it goes beyond this. There are long-term consequences for the architecture of the world economy. This report goes from the micro of biking to Chinese ports, through the theory and reality of supply-chain shocks to the ultimate consequences for the shape of the world economy and its governance.

Forecasting with Random Disruptive Variables: Human forecasters "pigeon hole" multiple disruptive variables by tying them all together with seamless logic in what strategist spin as a good storyline.   These constructs impart security and a sense of safety (Like Big Objects in Quantum Mechanics).  But such forecasts are only be right by chance.   That's because the relationship between each disruptive variable is random and not set by historical observations or correlations. Here we look at 7 random disruptive variables individually and independently. Some are sure to happen.  

The Disruptive Variables are: The Kabul Curse;  China Succession; Positive Feed Forward Loops and Climate Change; Zero Tolerance Covid Policy;  Private Versus Public Crypto Currencies;  The Economies of War;  Collapse of the Post-Pandemic Economic Architecture;  

Analysis of prospects for  the German Federal Elections on September 26, 2021. 
Germany is about to dumped the CDU/CSU coalition that has ruled it for 50 yrs.  The new government is likely to include the SDP and the Greens.  That will change many things: fiscal policy will expand as will green and infrastructure spending.  Electric vehicle adoption will accelerate. So will the achievement of zero Green House Gas emissions.  But Germany is also key to what happens in Europe.  The next government will be pro EU integration. It will add credibility and backing to the EU Next Generation (NGEU) initiative- critical to the reform of southern EU members. It will consolidate EU integration by facilitating North- South fiscal transfers. And it will create a European Common Bond Market that could enhance international use of the Euro as a store of wealth.

China's Common Prosperity is a new ideology. It changes dramatically the operating system of the Chinese economy from creation of individual wealth to serving common prosperity by creation of a new middle class.  This is not a typical marxist-leninist goal of hefting the masses. It literally targets the creation of a new middle class through state intervention. This alters how investors are rewarded.  But more so, how Chinese society works.  It is closely linked to what we have seen in terms of the dramatic increase in regulation of  the private sector.

US Fed- Jackson Hole
Jerome Powell, Fed Chairperson, just gave his keynote address at Jackson Hole..  It is a porridge speech. not to hot, not too cold. But like porridge it will get stickier as it cools.  This video tells why!  But for the moment Powell admits the economy is providing justification for the Fed to buy less bonds. But any increase in Fed Fund Rates is a long way away.

the view given here differs:  1. not only the US but 23 other global economies have got inflation back.  2. The specific types of inflation are idiosyncratic to each economy, but inflation is the common denominator. 2. Inflation is a real and resent danger in logistics and transport; IT hardware, low wage sectors and services; agricultural products; industrial raw materials, housing and construction .... i.e almost everywhere 3. The Fed stands out as doing nothing about it. Other Central Banks are normalising policy.  In the short term, markets will ignore this, comfortable that the Fed parked its well-used car in never never land again.

Long term there are even more risks:
1. De-globalisation and return to national(ist) economics will, provide security and employment in the states which do it, but at the cost of productivity and inflation.  Increased cold war between China and Democracies will also be driver. And this is set to get worse post Kabul.
2. Big Government to deal with the inequalities deepened and accelerated by the Pandemic but constituting a quasi permanent legacy.  In democracies, big government will have to buy the votes of the dispossessed by measures, which though kind and ethical will be both inflationary and a cause of low productivity.
3. The unholy marriage will endure between Governments and Central banks until death do them apart because central bank bond buying that holds cost of capital down is the only way that increasing sovereign debt burdens can be stopped becoming unsustainable.