Disruptive Discoveries Journal

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Four Questions for 2016 - Donald Trump, Deflation, China, & Oil

Chris BerryComment

By Chris Berry (@cberry1)

For a pdf copy of this note, please click here.

 

Ed. Note: The following remarks were those I made to investor audiences during a recent bus tour in Munich, Geneva, Zurich, and Frankfurt.

 

Ladies and Gentlemen, thank you for coming today and investing your most valuable asset in us, which is of course, your time. Speaking of time, what I’d like to do today is take a look back and a look forward and briefly offer some thoughts on where we’ve been in the global economy in the past year and what some of the key questions are in 2016 likely to drive the commodity and broader markets altogether.

Rather than make excuses or guesses as to why commodities continue to under perform, I’d like to examine some of our thoughts from a year ago when we were last here in Europe and see what has transpired.

Can China Halt The Spread of Deflation?

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF of this note, click here. 

 

With few exceptions, deflationary forces are likely to challenge growth in much of the world in 2015. With the global economy more tightly integrated than ever before, the risk of much of the world catching a “disinflationary” or deflationary cold is pronounced. Most commodities are trading at or near five year lows, real interest rates negative in various countries, and Central Banks are having difficulty hitting their (admittedly low) inflation targets of 2%. It’s obvious to even the most casual observer that the inflation genie is not even close to being let out of the bottle.  

Given that the global economy is generally struggling to generate “escape velocity” growth, the main question is how deflation might spread? I see three transmission mechanisms:

globalization, high debt to GDP ratios, and innovation in technology spurred by R&D.

This note discusses the first two mechanisms with a focus on China’s efforts to halt the “export” of deflation.