Not one but two tigers, by the toe.

I’m in New York attending to some matters concerning a dear family member. In between chores and jetlag, I read two investment commentaries which brought me back to my usual milieu. In the midst of all the energy and vitality of this city it is easy to dismiss the thoughts in these pieces as far-fetching theoretical observations suited for scaremongering and pandering to crisis. But when you temporarily relax in bed in your hotel room and you stare at the ceiling, suddenly you get hit by the common sense they contain.

The first of the commentaries is on China (what else?), authored by Morgan Stanley; you can find it here. The essence, as I read it, is that the breathing room in Chinese economic data gained over the past few months is practically all attributable to loosening monetary and fiscal conditions in the country and, more specifically, to the ever-more aggressive use of debt (like feeding more drugs to an addict in the hope he will quit). We have been aware of the debt story for years. Yet we still fail to see how dangerous all this can be when you throw into the mix the potential policy shifts needed to address even a moment of subpar conditions. If anyone still has any doubts about the temporariness of the lull in currency turbulence, please think about this: in the context of internal Chinese economic and political musts, the yuan is logically the most expendable resource.

Dire as the above situation is, I classify it as cyclical in nature: the economic potential of China is far from being fully achieved. A mega hiccup, so to speak, which will convulse the body but not kill it. It pales in comparison to the picture painted in the report on pensions by John Hussman this week (in this link), because it highlights a major danger to the sustainable economic livelihood of a number of generations in the US. If the level of pension underfunding in our economic system is of the size portrayed or implied (and I have no difficulty believing it), then we really may have to rethink a lot more than the simple question of who the next president will be or what economic policies may be followed. Furthermore, the fact that all this is partly a result of the doggedly pursued policy of zero interest rates raises the issue of how far behind Europe may be – if they are not already there, or have been for years. The lack of growth in investment, which is the building block for any future real growth and a possible solution, makes the brutality of our conditions all the more pressing.

From the hotel room I can hear a band playing music in what looks like a mini concert in Union Square. Maybe it’s better to go out and rejoin the inspiring energy of the City that Never Sleeps.

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