China 🐻s & Living Standards
Steve Cohen stepped away from trading this week. This is an excerpt from Black Edge, the story of his career:
There tend to be two types of people who seek out jobs on Wall Street. The first are those with wealthy parents who were sent to the right prep schools and Ivy League colleges and who, from their first day on the trading floor, seem destined to be there. They move through life with a sense of ease about themselves, knowing that they will soon have their own apartments on Park Avenue and summer houses in the Hamptons, a mindset that comes from posh schooling and childhood tennis lessons and an understanding of when it is appropriate for a man to wear seersucker and when it isn’t. The second type call to mind terms like street smart and scrappy. They might have watched their fathers struggle to support the family, toiling in sales or insurance or running a small business, working hard for relatively little, which would have had a profound effect on them. They might have been picked on as children or rejected by girls in high school. They make it because they have a burning resentment and something to prove, or because they have the ambition to be filthy rich, or both. They have little to fall back on but their determination and their willingness to do whatever it takes, including outhustling the complacent rich kids. Sometimes the drive these people have is so intense, it’s almost like rage. Steven Cohen came from the second group.
The Fed ended up exceeding expectations and cutting 50 bps on Wednesday. There are 2 more cuts expected this year. This should give the green light to the Bank of Canada to cut rates more aggressively.
Since the Fed started raising rates, the terminal rate 24 months out has fluctuated between 2% and 4.5%. Meaning the market and forecasts are meaningless.
Asset class performance one year after the Fed starts to cut since 1989. Gold has been the best risk reward.
The Fed beginning to cut has propelled gold higher over the past few Fed cycles.
Manufacturing in the rust belt suffering began in 1971, US policy (high rates, Clean Air Act, ending nuclear/stagnating energy) took hold pushing manufacturing offshore.
If manufacturing returns to developed nations, there is incentive for it to be automated due to high wages.
The days of China being the world’s growth engine may be over. Some worry that China could suffer a similar fate to Japan post their bubble. Japanese long government bond yields eclipsed those of China for the first time.
Just about everyone is negative on China’s growth prospects.
Equity market investors in China missed out on a strong recovery in the US.
Some mega caps have benefitted more than others in the past decade but all have experienced healthy returns.
The people of the US have not benefited in the same way. By some measures, 30 year olds are living very different lives compared to 40 years ago.
The average life expectancy at birth is 5 years longer in Australia compared to the US.
Drugs, firearms and disease are the main drivers.