beginning of the end - or end of the beginning?...dead-cat bounce? 2. or breakout from 13-year bear...

Beginning of the end -

or end of the beginning?

Anatole KaletskyCo-Chairman and Chief Economist

GaveKal Dragonomics

Churchill after Alamein, 1942

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“This is not the end.

“It is not even the beginning of the end.

“But it is, perhaps, the end of the beginning.”

Dead-cat bounce?

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Or breakout from 13-year bear market?

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Structural growth obstacles

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1. Bad public policy – fiscal and monetary uncertainty

2. Credit bubbles in China and EMs

3. Deleveraging by banks and households

4. Inequality > underconsumption

5. Environment and commodity constraints

6. Underinvestment etc > weak productivity

Structural growth drivers

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1. End of communism > global single market

2. Three billion new producers and consumers

3. Information and computer technology

4. Unlimited fiat money

5. Alternative energy

6. Moore’s law, robots etc > accelerating productivity

Is it a rabbit or a duck?

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… US job growth sets all market trends

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US “New Normal” may be 3.5%-4% growth

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US housing rebound will continue

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Household leverage has normalised too

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Europe and Japan recovery hardly begun…

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US and EU now only 45% of global GDP

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China’s reforms still a major risk

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“New Normal” - same as the Old Normal

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Investors need to discriminate among EMs

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Necessary conditions for euro’s survival

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1. Fiscal union (1): joint control of fiscal policy

2. Fiscal union (2): joint responsibility for debt

3. Banking union: joint resolution and guarantees

4. Monetary union: sovereign lender of last resort

5. Political union: democratic legitimacy

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The biggest story in China and EMs

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A Brief History of Global Capitalism

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0. 1776-1800 American and French Revolutions, Napoleonic Wars

1800-1848 Pre-Capitalism struggles with Post-Feudalism

1. 1848-1865 European Revolutions, US Civil War

1865-1929 Global Capitalism: Economic and Political Liberalism

2. 1929-1945 Great Depression, World War

1945-1974 Keynesian Golden Age: Government-Led “Mixed Economy”

3. 1974-1980 Great Inflation, Cold War

1980-2007 Thatcherism-Reaganomics: Market Fundamentalism

4. 2008-2013 Global Financial Crisis

2013-???? “Capitalism 4.0”: Sceptical, Evolutionary, Experimental

What’s Next?

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