Market expectations for Chinese stimulus were high at the beginning of 2019. In this piece, Srinivas Thiruvadanthai takes a closer look at Chinese credit and monetary aggregates data and finds that the early-2019 credit push did not translate into increased economic activity or net increases in profit sources.

Market sentiment had to adjust over the course of the first two-thirds of 2018 to economic surprises in several parts of the world, each tied to foreseeable changes in a region’s profit sources. In this excerpt from the September 2018 issue of The Levy Forecast®, David Levy discussed what to expect in late 2018 and 2019.

Chinese policymakers are once again faced with a familiar dilemma—absent significant stimulus and credit easing, the economy will probably weaken markedly, and financial problems will likely surge. Indeed, the only way China can deleverage its private sector while sustaining economic growth is to run large fiscal deficits.

The two reliable shining knights protecting the stock market and other risk assets during this long economic expansion were suddenly AWOL during the stock market’s volatile first few months of 2018.

Increased government deficit spending will increase imports, expanding the trade deficit, because anything that increases spending and incomes in the economy will result in some additional spending on imports. But, lo and behold, saving and investment balance out automatically—largely through changes in profits—not just in a theoretical closed economy but also in a real one conducting trade with the rest of the world.

There is little discussion of the real constraint on monetary policy: oversized global balance sheets and the consequent dependence of global stability on low interest rates. Sufficient increases in either short- or long-term interest rates would lead to financial instability, and 2018 is likely to bring more of each.

In this bulletin from early 2018, we wrote that considering current interest rates, growth, and their outlooks, the dollar looked oversold versus many global currencies.

These two articles examine key reasons for the underperformance of hedge funds in this latest cycle, and why some hedge fund strategies may be able to take advantage of better opportunities ahead.

A slew of recent data continue to paint a rosy picture of the euro area economy, and we expect sustained momentum over the next couple of quarters. Yet intra-euro-area economic disparities could create future challenges for the ECB.