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Trinh

@Trinhnomics

Sep 26, 2019 • 25 tweets • 18 min read • Read on X

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The double Ds - demographic & debt - & how that leads to the triple Ds - DEFLATION.

Ready?

#demographics World population growth rates are expected to slow, w/ contraction in many places (think Europe, East Asia - Japan, China, South Korea, etc).

We will grow at the slowest pace than anytime since 1950. Growth rate peaked in 1965-1970 👈🏻

#demographics Breaking this down into regions - very clear that Asian population peaking & will fall.

Look at Sub-Saharan Africa. Note that this is a projection & we shouldn't take anything beyond 2050 too seriously. The UN revises this very often but still useful for trends.

#demographics Let's look at contribution to population growth by country. Ready?

#1 India 🇮🇳
#2 Nigeria 🇳🇬
#3 Pakistan 🇵🇰
#4 Congo 🇨🇬
#5 Ethiopia 🇪🇹
#6 Tanzania 🇹🇿
#7 Indonesia 🇮🇩
#8 Egypt 🇪🇬
#10 USA 🇺🇸

#demographics Most populous country by rankings from 1999 to 2050 (2100 is a bit far away here). By 2050:

#1 India 🇮🇳
#2 China 🇨🇳
#3 Nigeria 🇳🇬
#4 USA 🇺🇸

China population expected to decline while US still increases. Indonesia drops out of fourth place 😱

#demographics Countries where population will DECLINE by at least 1% b/n 2019 & 2050. Ready?

>-20% decline is full of European countries
>-15% is Japan 🇯🇵 - Japanese people becoming rare
>-5% Russia, Taiwan, Thailand - also becoming rarer
>-2% China 🇨🇳 👈🏻

USA not there !

#demographics This is the mother of all charts b/c economists care about working age population to see if the change of labor will be helpful or a drag to growth. In East Asia, that will FALL SHARPLY.

In South Asia, that will RISE. A complete juxtaposition.

#demographics Once upon a time in 1990, the world was very youthful. Not too many >65-year old around (life expectancy lower). Only the UK & Nordic countries had >15% of population >65.

Today, everyone has aged & made fewer babies & so silvering. By 2050, on Africa is young 👇🏻🌍

#demographics We are not replacing ourselves fast enough in Asia (not South Asia however) & Europe. Why? Not having enough babies. Speaking of which, I was obsessed about Archie the royal baby last night - only 1 though, need 1 more to replace both parents.

Birth below 2 👇🏻👇🏻👇🏻

#demographics We are living longer (80s👵🏻🥳) & expected to live longer - so treat your body well as u have to see it for a while. Anyway, not good news if u work for a pension fund or social security office. Haha.

Oh wells. Long silvering stocks?🤷🏻‍♀️

#demographics People voting with their feet? Net international migration during 2010 to 2020.

Look at the USA 🇺🇸 - off the chart!!! A lot of net + migration (I moved to HK in 2011 so -1). Germany big too.

Who sees net outflows? India & China. Also Venezuela. Biggest is Syria!

#demographics This chart is just so heart-breaking for Russia & Italy & good for the USA & the Americas in general & Australia too!

Okay, so if u got net +inflows of people & net +natural increase (births>deaths) = HOT PINK (e.g., 🇺🇸🦘🇦🇺)

If deaths>births and net outflow = BLUE

@BIS_org

All about #demographics 👇🏻👇🏻👇🏻 - they got statistics too on urbanization etc. Free to download. Have fun!

population.un.org/wpp/Publicatio…

Okay, #debt - the fun stuff! This is the @BIS_org turf. The quarterly bulletin! @HyunSongShin - my fav economist 🤓

bis.org/publ/qtrpdf/r_…

@BIS_org

@BIS_org @HyunSongShin #debt We know that debt is not the issue b/c that is asset on the other side of the balance sheet.

But debt can be debilitating if income can't grow faster than the debt. Economists look at debt as a percentage share of income. At the macro level, % of GDP

Private debt % GDP👇🏻

@BIS_org

@BIS_org @HyunSongShin Let's step back & think about this for a second for those not in finance. Say your annual income = 100. But u don't want to stay at 100, u want to grow to say 200 in 10yrs & so u borrow $ & hopefully invest to upskill & not consume &that ur new skills gets u to say 200 salary. OK

@BIS_org

@BIS_org @HyunSongShin When u take on debt, u make 2 assumptions: a) the investment will payoff in making you more productive (rise in income); b) interest expense + payment sustainable.

So u have a problem if: a) income declines; b) interest expenses rise; c) debt too high & principal payment rise👈🏻

@BIS_org

@BIS_org @HyunSongShin Let's look at the situation & assume that all these economies make 100 per year. In the Euro area, private debt is ~160; Off the chart in Sweden at 240.

In EM Asia, China private sector debt is 210 for 100 income, Korea ~150, Malaysia >120, Thailand ~120

India & Indonesia low

@BIS_org

@BIS_org @HyunSongShin This is what we call the STOCK of private sector debt. When you have a lot of debt & the debt is greater than your current income, 2 other elements are important:

Time horizon to repay the debt & interest expense on the debt (how fast it compounds relative to ur income) 👈🏻👈🏻👈🏻

@BIS_org

@BIS_org @HyunSongShin If the term of debt is SHORT-TERM, u're in a pretty hurry to pay it back, which is basically a lot of China's private sector debt. So u're constantly needing to roll over this debt as it EXCEEDS income.

When this happens, if ur income growth is weakening, u'd want RATES TO FALL

@BIS_org

@BIS_org @HyunSongShin Ur risk appetite to take on debt's contingent upon expectation of higher return or paying this back won't destroy ur future well being (economists call this smoothing consumption as u're rational). If profits fall, rates sticky, expectations of future worse, have a flow issue too

@BIS_org

@BIS_org @HyunSongShin This goes back to @michaelxpettis tweet yesterday on it is not a supply but a demand issue in China. I think it is both. When a system is too leveraged, it only make sense to increase risk if the reward of that risk is big enough as debt payment burden high already.

Debt 👇🏻

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis What's going on with growth? Globally, in places where demographic challenges are massive (Europe, Japan, Korea, China) & debt is high (same group), there is a growth problem. This is esp an issue if a country like the US is less willing than before to be consumer of last resort.

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis So demographic (adverse transition) + debt (debt as a share of GDP>2 times) = Weaker growth.

But do not underestimate central banks' resolve to fight this pull. How? Lowering interest rates. Japan. Europe. Korea. and China too when it has space to do so once it sorts out protein

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis In all scenarios of the World Bank's long-term projection, China growth will decelerate below 6% 👇🏻👇🏻👇🏻

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis Today, the Bank of Korea raised its concern regarding the STOCK of debt Korea has & the deterioration of earnings (exports in double digits contraction) on the repayment ability, although says still OK so far. That said, Korean households debt/disposable income is 159%.

👇🏻👇🏻👇🏻

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More from @Trinhnomics

Trinh

@Trinhnomics

Jun 27

Good afternoon,

Yes, it has been a while. I have been running around the world & Asia. It was nice seeing so many people and places to share views, but my inner nerdling self fundamentally enjoy sitting at desk listening to music to read and analyze. For those that I got a chance to meet, thank you! People make the world go around - we all yearn to understand our reality & seek to be understood.

Anyway, shall we review first half? And perhaps think about second half 2025, which starts Tuesday next week.

First, we live in a Trump world. By that, we can't escape his decisions, pushing, wanting.

What does he want? That is a question I get a lot. And most people tend to response with this, "He probably doesn't know it himself."

I don't agree. He does. He's clear about it. It's how he gets there and the people that he surrounds himself with to execute it is a big if but not what he wants.

I'll put three things that Trump wants and basically got so far despite everyone calling him TACO (Trump always chickens out).

Three things Trump wants:
a) Tariffs - he likes tariffs. He sees it as a tool to get what he wants, which is to grow US industrial prowess & rebalance US trade. We can disagree on whether this is the right tool or subsidies or industrial policies are better. But tariffs he wants and he gets.

People think TACO is the trade. But tariff is the trade. It's higher. You accept this new normal fine.

I'll give you an example. We got 50% on steel. 25% on aluminum. 25% on auto. +25% fentanyl on Mexico and Canada excluding USMCA products. +20% on China.

And +10% on rest of the world. For China, expires August. For rest of the world, 9th July. Probably gonna get extended.

Read 9 tweets

Trinh

@Trinhnomics

Jun 20

Good morning,

Happy to be back in Hong Kong! The world is on fire, this time, the threat of war widening beyond just Israel and Iran but to the US and that means the gulf.

Meanwhile, Japan sees core inflation rising to 3.7%YoY and this forces the BOJ to hike (it really doesn't want to for many reasons) as it struggles with policy response - note that inflation has been higher than 2% for so long while policy rate is only 0.5%.

So who is most affected by this whole conflict? Well, we all in different ways but the most obvious outcome is oil. Let's take a look.

We Asians IMPORT 69% of oil going through the Straight of Hormuz and the Saudis export the most.

First, let's go through what's happening. Iran has been attacked by Israel and has shown that it is weak. Now that it is weak, it will have to fight back strongly or risk being seen weak.

So it's a question of how it will surrender not whether and when. Will it do that to the US or Israel? It will fight first. Second is the US, will they take this opportunity to wipe out the threat of Iran nuclear power?

If the US is involved, there is a chance of this widening out as US assets in the region will be targets.

Hence the question of the Straight of Hormuz.

20% of global oil consumption flows through the Strait of Hormuz. It is a narrow channel so if that gets choked up, we're looking at a big oil supply shock.

Who's affected? Producers - the gulfs like Saudi, Kawait, UAE.

Who are the importers? Asians, namely China, India, Japan, South Korea. They make up 69% of total imports.

eia.gov/todayinenergy/…

Read 5 tweets

Trinh

@Trinhnomics

Jun 9

Good morning Hong Kong,

Happy to be back in Asia. Paris was great for many reasons - but mostly because the vibe in Europe is much better as people feel more empowered by change that allows people to zoom out from usual distress over political stalemate, even if challenging.

What do I tell clients? Well, the same as I usually do. When you look at data, don't get fixated on a point in a series. Non-farm payroll/jobs data is an example. Markets get so fixated on what the expectations are & whether results are a beat or not. But what we should look at is a trend over time. Revisions happen. Downward revisions or upward. Seasonality happens (strikes/weather/etc). But what does the trend tell you & what does that mean for policy reaction function?

Well, if you zoom out, then what we see is that job gains are SLOWING in the US. And labor market data is lagging.

The ISM, both manufacturing and services, both point to slowing activity.

Meanwhile, we have CPI coming out in May - markets expect 2.5%YoY from 2.3% in April.

So what? What will le Fed do?

Inflation is an interesting figure. Why? Because it mirrors what Trump's doing on tariffs and also the dollar going lower, which means imports cost more now.

Both tell you that US goods inflation should rise over time. But what does that mean for US CPI? Well, most weights for US CPI is housing/services, which are non-tradeable in nature.

So while US CPI is rising, the Fed will want to see if core PCE is rising. Anyway, if employment is softer over time, and inflation is rising, doesn't that constraint the Fed from seeing through the fog and know what to do?

Read 15 tweets

Trinh

@Trinhnomics

May 29

Trump tariffs. Where are the powers coming from? Well, he has a menu of tariff options. It's the only tax that the president can incur without congress.

For Reciprocal Tariffs, he used the International Emergency Economics Power Act (IEEPA), which has an advantage of SPEED and SCOPE but disadvantage in FOUNDATION or legality.

Why? Well, he declared that the TRADE DEFICIT is the national emergency.

The US Court of International Trade said that he MISUSED the IEEPA, as in the foundation of the "emergency" is not right.

Trump team knew this. They know the laws. They decided for SCOPE and SPEED. What happens next?

Well, they appeal. And eventually, it will be the Supreme Court that will decide. But the foundation of his "emergency" was always being questioned.

Irrespective, for markets, there was already a Trump put, and a clear one. He himself sees these "reciprocal tariffs" as maximalist positions anyway.

Remember that he has other powers to choose from. Section 232 has a STRONGER FOUNDATION but takes a while. You need consultation and etc so it takes time.

The +25% steel & aluminum tariffs for example is from Trump 1.0 and he's just removing exemptions + raising alum from 10% to 25%.

Auto tariff is new.

There is a few others that are being "consulted".

Read 4 tweets

Trinh

@Trinhnomics

May 26

Happy Memorial Day to Americans! And good morning to Asia!

Let's talk about something very topical. Debt. Yes, it has risen. How much debt do we have really? Who owns it? Why is cost of debt an issue?

Can the US solve its debt crisis?

This chart is my fav chart. I show stock of debt & then flow of debt (change since 2019 in orange bubble). Debt matters in terms of who owns it, which sector, etc.

Who is the biggest debt of them all? Well, Japan. It is also the biggest creditor to the world (lending money). Japanese debt is unique in that because of weak private sector, the government has been just expanding like crazy because the households and corporates just sit on savings.

Okay, why is this important? Well, those savings traditionally invested in their own debt (used to be very low yielding on the longer end) and also OTHERS' debt, USA + other emerging markets, also Europeans etc.

The Japanese sovereign yield curve is interesting not just for Japanese lifers, banks & JGB strategists but also for everyone else.

What has happened? Well, per usual they will run fiscal deficit. Nothing new. But the BOJ also owns like 48% of this debt and wants to reduce, but very hard because lifers etc don't want to buy so much more of this supply.

So what happens? The yield curve steepens. What is a yield curve? Well, you can borrow short-term (overnight) or for a long time (30 to 40 year in Japan) at a set rate. Japan has been running very close to zero rate for a long time.

So debt is not an issue if your servicing costs were close to zero.

But the longer, esp the 40-yr is now 3.5%. Yep!
The shorter end, which is policy rate is 0.5%.

This curve is STEEP!

Read 13 tweets

Trinh

@Trinhnomics

May 14

Good morning,

US April inflation came over night softer, and that's no surprise really - we knew that energy, food and service costs were going lower. Everyone said, well, what pain for China if April exports were strong, not to the US of course, but to the world (+8.1%)YoY. The same is said about US CPI. It's actually slower to 2.3%YoY despite a very soft USD & tariffs that started since February.

What does that mean? Why did the the US-China both come to the table to stop the embargo of trade?

Can both of these arguments be true? Of course. First, we must talk about these different balance sheets. They are one and the same. But they interact differently.

CPI is a domestic phenomenon. US inequality/lack of affordable housing/high costs of college/healthcare/etc are DOMESTIC IN NATURE. We call it NON-TRADEABLE. Sure, higher steel & timber make building a house more expensive. Higher appliances also make it expensive. But let's be honest here, the biggest costs of the house is the land & next costs is the regulations and the permits and the actual time and capital erecting it.

California/NYC/Seattle where the jobs are all have regulations that make it very expensive to build. And that has been the case during LOW TARIFF REGIME.

So listen, just think if you live anywhere. When you get a paycheck, where does your money go? Well, if you rent or mortgage, then it's HOUSING.

Next, if you live in the US and send your children out of state or private for education, it's not a rounding error on two middle class incomes.

Of course, another essential - FOOD.
Another one is transport - that includes FUEL + Car (and indirect cost is TIME).

Goods, while you know, nice to have, durable goods you buy once and hopefully last you a decade or two, like a washing machine or a fridge or a microwave.

Toys, definitely like you buy according to age and once & don't repeat and prolly can get used because everyone disposes of this once the child is done.

So when you look at US inflation, the largest weights aren't GOODS or IMPORTED goods for a consumer.

It may be a very big part of a producer that imports intermediates. Say an oil driller that needs steel to build infra to drill or a domestic producer of appliances that need parts that are cheaper to source, say China.

Irrespective, an AVERAGE American person isn't going to feel tariffs. They will feel it via the news, via tiktok, via social media, via the financial markets that have exposure to the higher costs, but they are not feeling it much if they don't have a lot of financial assets.

So the reality is that inflation in the US is GOING DOWN for core goods. Egg inflation is lower after a flu supply shock. US food exporters will sell more domestically if selling abroad faces tariffs. But food isn't the bulk of inflation.

It's the services like housing etc. And they are going down.

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