ALL THINGS BIG AND SMALL 2.0

The daily gyrations and noise of the financial markets are these days exacerbated by algorithmic machine-trading. In addition, the high inter-connectedness of global markets and availability of instantaneous information leads to high correlation between all asset classes: equities, bonds, commodities and currencies; leading to higher and higher volatility via feedback loops until it crashes (nothing goes on forever  in such Chaos theory models). Like what happens when your electric guitar's signal feedback to the amplifier turns into a howl. Taking a longer term view helps in taking away the noise to view the fundamentals. The chart below shows US interest rate changes from 1965 to the present, as represented by the yield on 10-tear Treasuries. Superimposed on it, the Dow Jones Industrial Average and Singapore's Straits Times Index. The chart scale is logarithmic and changes are in % for comparability. The second chart shows yields for 5-years so that details can be vi...

The media, analysts, fund managers and assorted pundits have been increasingly strident about China's huge debt overhang amounting to trillions of dollars; warning that it will trigger a financial and economic crisis not only for China but the world soon. We have seen the effects of the current China slowdown on everything from demand for iron ore to demand for luxury goods, as China's economy forms a larger and  larger part of the world economy. The current economic slowdown in China is the result not only of the ongoing Chinese government;s economic structural reforms but also of years of monetary quantitative easing (QE); beginning with the mega economic stimulus of late 2008 which pumped US$600 billion into the economy. This cheap money fuelled the economy, resulting in an overheated real estate sector, over-investment in manufacturing, wasteful projects, underutilised infrastructure. China's demand for commodities such as oil, coal, iron, steel and agricultural co...