FRA Co-Founder Gordon T.Long and Jeffrey P. Snider, Head of Global
Investment Research at Alhambra Investment Partners discuss a broad array of
Global Macro subjects in this 48 minute video discussion with supporting
slides.
As Head of Global Investment Research for Alhambra Investment Partners,
Jeff spearheads the investment research efforts while providing close contact
to Alhambra's client base. Jeff joined Atlantic Capital Management, Inc., in
Buffalo, NY, as an intern while completing studies at Canisius College. After
graduating in 1996 with a Bachelor's degree in Finance, Jeff took over the
operations of that firm while adding to the portfolio management and stock
research process.
In 2000, Jeff moved to West Palm Beach to join Tom Nolan with Atlantic
Capital Management of Florida, Inc. During the early part of the 2000's he
began to develop the research capability that ACM is known for. As part of
the portfolio management team, Jeff was an integral part in growing ACM and
building the comprehensive research/management services, and then turning
that investment research into outstanding investment performance. As part of
that research effort, Jeff authored and published numerous in-depth
investment reports that ran contrary to established opinion. In the nearly
year and a half run-up to the panic in 2008, Jeff analyzed and reported on
the deteriorating state of the economy and markets. In early 2009, while
conventional wisdom focused on near-perpetual gloom, his next series of
reports provided insight into the formative ending process of the economic
contraction and a comprehensive review of factors that were leading to the
market's resurrection. In 2012, after the merger between ACM and Alhambra
Investment Partners, Jeff came on board Alhambra as Head of Global Investment
Research.
Jeff holds a FINRA Series 65 Investment Advisor License.
US TIC Report, Treasury Sales
TIC is a compilation done by the US Treasury based on their access to data
on foreign accounts and holdings of Dollar accounts and securities, and
estimates the foreign Dollar market. Over the last decade or so, it is clear
that the Eurodollar market grew steadily at a rapid rate until about August
2007, at which point it pivots and comes back down. The TIC data shows the
tendency of dollar markets to essentially be stable, usually addressed
through selling Treasury. However, the private dollar markets offshore are in
disarray to the extent that central banks around the world are forced to fill
the dollar deficiency with their own holdings. Of especial note is China's
reduction of their US Treasuries and foreign currency reserves, and OPEC
countries incurring serious Current Account deficits in an attempt to
maintain their pegs with the US dollar. In addition are the emerging markets
who borrowed about $7-9T in USD, who now have difficulty paying back debts
due to slowing trade and falling currencies.
This all leads to the US dollar strengthening, which is the manifestation
of the dollar shortage. In recent days, Japan using NIRP will further disrupt
the dollar system.
"US Dollar Strength is a manifestation of a US Dollar
Shortage!"
Japan: QE failure and What NIRP Means
Under QE, Japan obtained a burst of inflation around 2014. Instead of
leading to sustained economic activity, household income and spending dropped
about 7%, which was also not offset by growth in GDP and demand. The surge in
expansion, due to cheaper money, increases supply which then demolishes
pricing power. In addition to the reduced value of savings, large companies
have also shifted production offshore, thus increasing the effect and
emphasizing the failure of QE/QQE to stimulate the economy.
NIRP also carries with it the threat of failing like QE, along with
numerous other particle effects that cannot be currently measured or
predicted, mostly as this type of system has not existed for over a hundred
years. This is an indicator of the lack of power central banks have over the
economy, but can be put down to overemphasizing the value of monetary policy
over fiscal policy in the developed world. The dollar system has been
artificially expanded past any control by banks and monetary policy,
globally, over the last decade. The only way to stop it is to focus on other
fiscal factors that would allow economic potential to be realized again and
to refrain from following Keynesian economics once it has been proven to be
ineffective.
"Japan is a test case in almost clinical conditions for QE and
QQE, and it failed on every count."
China: Collapsing Trade and Credit
China is both an impediment to growth and a casualty of the rest of the
world, but recently more of a reflection of the global dollar economy as they
are most sensitive to changes there. The lack of growth over several years
forces a fundamental shift toward a Keynesian response of fiscal and monetary
stimulation that creates asset buffers at odds with overcapacity. Meanwhile,
China still lacks any real method for economic growth and is forced to react
to outside influences while juggling the problem of overcapacity with the
falling export industry. This then leads to capital flight, which furthers
the struggle to grow GDP.
China is clearly attempting to manage the Yuan by selling dollars to
strengthen it, but will eventually falter like any pegged currency. Many
currencies pegged to the US dollar, Eurodollar, and Petro dollar will likely
collapse. Keynesian economists believed that 2007 was the beginning of a
temporary deviation from sustainable global growth, but was in fact the
structural revaluation of higher economics of the financial system. We are
likely headed for a systemic reset and reorientation, which will be
disruptive with significant risk but can be adapted to.
"I think we are headed for a systemic reset."
Retail: January Sales and Continuing Trend
Retail sales have been near recession levels of low, indicating that
consumers are under pressure, but inventories are still rising despite
manufacturers cutting back. Retail slowing is a fixed trend starting from
2012, amplified in 2014-2015 with the disappearance of the manufacturing
industry and loss of export goods. This is likely due to lack of real
recovery that slowly eroded US consumers' ability to continuously expand
their activity. The middle class has no savings, so thus the capitalist
system that relies on savings to reinvest into productivity.
Over the last several years, companies have been spending on buybacks
instead of investing in productive capacity. 1900 of the S&P companies
spent more on buybacks and dividends than they were earning, thus creating
more debt.
"Recession is a necessary process, like anything else. It's creative
destruction."
Labor: Full Employment -- Not Really!
There is a major disconnect between major unemployment statistics and the
rest of the economy, where even having a job is not necessarily enough to
support the expected standard of living. There are low prospects for growth
in the job market, and people sense that there is a need for a restructuring
of the system. Job growth is mostly in low income occupations, which results
in potential workers entering college with a loan but failing to actually
enter the labour force.
The current economic state is similar to the suppressed state of the
1930's and 1940's, and once the systemic reset is allowed to occur, the
economic potential released will be tremendous. Recessions are necessary to
allow risk to be properly priced, which in turn creates confidence in investment.
The resulting reset should shift away from one centered around banks and the
value of credit toward a capitalist system that prioritizes "money is
money" over "money is credit".
"Monetary policy is designed for companies to borrow more; it's
just that economists expected they'd borrow more for productive capacity
rather than financial capacity."
Abstract by: Annie Zhoua: zhou108@gmail.com
Video Editing by: Minjung Kim: minjung.kim@ryerson.ca
