Risk Update: June 2020 – NBFIs, where the tails are hidden.

‘Really it’s about getting the labor market back and getting it in shape. That’s been our major focus. I would say if we were to hold back because…we think asset prices are too high, others may not think so, but we just decided that that’s the case, what would happen to those people? What would happen to the people that we’re actually, legally supposed to be serving? We’re supposed to be pursuing maximum employment and stable prices, and that’s what we’re pursuing.‘     Federal Reserve Chairman Jerome Powell, June 10th 2020. Not an unusual sentiment from policy makers, but is it…

Risk Update: May 2020 – China & HK = Fragility.

We’ve written a fair bit about China’s prominent role in the build-up of endogenous risk during the global growth cycle since the GFC. There are any number of ways of trying to reflect it. In the March monthly, we used one of our regular views, China FX reserves to M2 money supply. Back in the December 2019 monthly, we showed some graphs from IMF and World Bank reports. This one shows the rates of change of Debt/GDP going into various end of cycle risk unwinds. We have also updated an old favourite that represents historical and projected China Debt relative…