QOTD from World's Largest Currency Trader, John Taylor: "The euro is going to hell"

Here are some other highlights:

So why should the U.S. dollar appreciate in such a horrid environment? As the world's reserve currency, Taylor says, the dollar has become a reverse indicator of the globe's economic health. "Whenever things are good in the world, [the] currency goes down," since there's ample liquidity. But when the rest of the globe is doing poorly, there's no liquidity and therefore the U.S. dollar is worth more. "That is the most important thing to know about foreign exchange nowadays–it is kind of backwards," he says. 

Greece's default is more a matter of when than if, he says, as the Greek citizenry won't support the austerity measures necessary to stay in the euro zone. There will be a referendum this autumn on some of the recent changes, and the outcome could upend the fiscal cuts already decided upon, Taylor warns. 

He now sees the euro trading between $1.37 and $1 over the next 18 months—nearer to the top side "if the Fed does its best at ruining our currency, and the euro manages to survive somehow." The world is pretending the European debt crisis is fixed, he adds—necessary if you are trading short term, but "long-term, a debt deal isn't going to work. The euro is going to hell. Every time they do things to fix it, it gets deeper and deeper." 

Are there any other currencies worth paying attention to? Taylor is positive on the commodity-based ones, such as the Australian and New Zealand dollars, despite their run-up. "We use commodities to forecast currencies," he notes. For instance, Norway's krone is a function of the price of oil, which he thinks is a solid long-term bet on the next growth cycle. In five years, he says, "we could see oil at $500 a barrel. I would be a buyer on dips of oil." 

Among Taylor's influences is the 1991 book, Generations, by historians William Strauss and Neil Howe, which identifies longer-term cultural and demographic cycles in American life. "Every 80 years, we go through a deleveraging cycle," he says. "It's hard to measure, but that's where we are now. It has to do with the period 2010-20, compared with 1930-40." The so-called Millennials, who were born between 1980 and 2000, "will be the ones to save us, but they'll have no money, no entitlements," says Taylor.

Full article here. 

Video: Niall Ferguson - The West and the Rest (Chatham House Talk/Q&A)

Video: A Bleak Long-Term Economic Picture for Japan?

Predicting the Land of the Rising Sun's future is a complex undertaking, and many a financier has had both their belt and suspenders handed to them from betting on Japan's economic implosion.

I'll admit up front that I don't have a ready prediction that X will happen by Y date. But here are some of the macro elements to keep in mind:

1. Japan is a major surplus country, meaning it produces and sells much more than it consumes. Much of the savings the country generates, which have to go somewhere, have been invested at home in Japanese Government Bonds (JGBs) and abroad in U.S. dollar denominated assets. Alongside China, Japan is the second largest holder of U.S. treasury debt with as almost $1 trillion in holdings.

2. While Japan has a breathtaking 200%+ public debt/GDP ratio (the highest in the developed world), 94% of that debt is Japanese owned. What this means, basically, is that so long as the Japanese keep buying JGBs then Japan's fiscal future is in its own hands. In contrast, the U.S. depends on foreigners to finance a large portion of its federal deficit. The thrifty Japanese save enough to finance their Keynesian stimulus policies all by themselves and still have plenty left over to spot Uncle Sam!

Now, the Japanese savings rate has been steadily declining to what would seem an unsustainable level in terms of maintaining the current fiscal course.

Continue reading the full article published on SeekingAlpha here.

Video: U.S. Brain Drain Problem Undermining Competitiveness & Job Creation

Addressing this issue should be a 'no-brainer'. Congress' inability to do so is shameful.

Visit msnbc.com for breaking news, world news, and news about the economy

Visit msnbc.com for breaking news, world news, and news about the economy

Chimerica or Chindia: Who Will Dominate the 21st Century?

A good read from Evans-Pritchard which covers several of the main issues which will determine which nation(s) will prosper the most in the 21st century.

Some of the key pieces of data highlighted in the article:

• Demographic trends (e.g., China's 1.2 males/female ratio suggest social instability)

• China’s workforce peaks in absolute terms in four years

• Birth rates: Beijing and Shanghai are 1.0, Korea is 1.1, Singapore 1.2, Germany 1.3, Poland 1.3, Italy 1.4, Russia 1.4 with the U.S. coming in around the population replenishment rate of 2.1

• Environmental catastrophe: China's growth rate of 10% is outstripped by 13.5% in GDP equivalent eco-damage)

Preview: Niall Ferguson's Civilization - The West and the Rest

Niall Ferguson's new book, titled Civilization: The West and the Rest, will be released shortly on March 3. An accompanying six-part Channel 4 television series premieres on March 6 in the U.K.

Here's a preview:

If in the year 1411 you had been able to circumnavigate the globe, you would have been most impressed by the dazzling civilizations of the Orient. The Forbidden City was under construction in Ming Beijing; in the Near East, the Ottomans were closing in on Constantinople. 

By contrast, England would have struck you as a miserable backwater ravaged by plague, bad sanitation and incessant war. The other quarrelsome kingdoms of Western Europe – Aragon, Castile, France, Portugal and Scotland – would have seemed little better. As for fifteenth-century North America, it was an anarchic wilderness compared with the realms of the Aztecs and Incas. The idea that the West would come to dominate the Rest for most of the next half millennium would have struck you as wildly fanciful. And yet it happened. What was it about the civilization of Western Europe that allowed it to trump the outwardly superior empires of the Orient? 

The answer, Niall Ferguson argues, was that the West developed six “killer applications” that the Rest lacked: competition, science, democracy, medicine, consumerism and the work ethic. The key question today is whether or not the West has lost its monopoly on these six things. If so, Ferguson warns, we may be living through the end of Western ascendancy. Civilization takes readers on their own extraordinary journey around the world – from the Grand Canal at Nanjing to the Topkapi Palace in Istanbul; from Machu Picchu in the Andes to Shark Island, Namibia; from the proud towers of Prague to the secret churches of Wenzhou. It is the story of sailboats, missiles, land deeds, vaccines, blue jeans and Chinese Bibles. It is the defining narrative of modern world history.

May 1st Update: Just finished watching the full six-part television series, which you can view for a few more days here. It was excellent and I highly recommended it.

I did spot one perhaps small nit: in episode six on 'Work', Ferguson describes American inventor Thomas Edison as the "alternating current (AC) king" of electricity. Whether or not this was another nickname for the "The Wizard of Menlo Park", it was fellow inventor Nikola Tesla (along with perhaps George Westinghouse) who can lay proper claim to being the true AC King. Edison was a fierce opponent of AC in favor of his own alternative (and inferior) direct current (DC) system.

To associate Edison with AC as Ferguson does is at best historically incomplete, or worse perhaps misleading.

The 'Shoe Thrower's Index': Middle-East Interactive Country Profiles

Click here to toggle the BBC's profiles and data on the Middle Eastern countries currently experiencing unrest.

Based on the below 'Shoe Thrower's Index' Yemen takes the cake at 87% (100% = most unstable).

Source: The Economist

New York vs. London vs. The World's Great Cities

A recent NY Times op-ed comparing New York's virtues to the world's great cities sparked a debate amongst friends on how The Big Apple compares to London.

I've been in London for all of seven weeks now, but here are some observations:

• Conversations in London are a lot more interesting, possibly due to the quality of the education system and high-brow media (i.e., Fox vs. BBC, or FT vs. WSJ); definitely a higher general level of awareness of what's happening around the world in London
• Food is surprisingly good and more reasonably priced than expected in London, probably due to the still favorable exchange rate of the U.S. dollar. However, New York probably has the edge here.
• Tap water is not as good in London, and Brita filtering only partially addresses its shortcomings (I came from the San Francisco Bay Area and Hetch Hetchy spoiled me)
• Tube vs. Subway: both aren't much fun; the Tube is more bearable and impressive in terms of its reach; central London is also surprisingly walkable so i rarely take the tube. London also has a nifty bike rental program.
• (Very subjective) Music is more to my liking in London; my first trip to the gym was greeted with an Armin van Buuren live set, something I don't think I've ever heard at a U.S. gym.
• Livability: London is definitely more livable than NY, and not just because the buildings are shorter. London's less densely populated and the weather is better. Nooks and crooked streets lend character; ample green space for dog lovers, and you can take your dog on public transports; citizens are trusted to drink alcohol in public, etc.
• Timing: it's a fascinating time to be in London with what's happening in Europe, although perhaps the same could soon be true for U.S.

While they both have their respective strategic advantages, here are some of London's: more cosmo/international experience sans empire. The Brits, with their global history, are a little more at home around the world than Americans, and arguably the rest of the world feels more at home in London than in NY. London perhaps also has a geographic/time zone advantage over New York: in the morning you can trade with Asia, and in the afternoon you can trade with America. Also, many of the world's most fastest growing financial products (currencies, derivatives, gold, etc.) are heavily traded or headquartered in London, not NY. Overall, London is more international than NY.

'la romantique'

In terms of NY vs. other worldly cities, with the U.S. still in the throes (and largely in denial) of its relative decline, living in NY could have the bittersweet feeling of being on location of what was until just recently the world's center of gravity. NY is obviously still good. But to use the metaphor of a great social event, you know you arrived late as the party is clearly fading. In fact, I believe NY's zenith probably was in 1962. Cities like London and Paris (here's a cute New York vs. Paris blog), which have had plenty of time to come to terms with their loss of empire, may perhaps feel more comfortable in their downsized shoes.

If you're looking for the world's the most up-and-coming dynamic places right now, then Shanghai, Singapore, Sydney, Cape Town, Dubai, Hong Kong and Mumbai would trump both New York and London. I also agree with the NY Times author that Chicago, which seems to be doing relatively well in terms of popularity, is the quintessential American city.

What do you think?

Does Capitalism Depend On Population Growth?

Sometime in 2011 the world's population is projected to pass 7 billion.

However, if current trends in birth rates hold eventually the planet's population will top out around the year 2050. Does the survival of capitalism, as PIMCO's Bill Gross recently speculated, depend on population growth?



Courtesy of The Economist.

Bill Gross to Government: Quit "Flushing Money Down the Toilet"

PIMCO's Bill Gross, often referred to as "The Bond King", today published his August investment outlook which outlines the economic headwinds (past, present and future) due to slowing population growth.

For anyone not familiar with Gross, he and his colleagues at PIMCO run the world's largest private bond fund with over $1 trillion in assets under management. The U.S. Government sells bonds to finance its deficits, and Gross and PIMCO are big (maybe the biggest?) buyers of those bonds. Put simply, when Gross/PIMCO talk government listens. But don't just take my word for it. Ask Clinton campaign manager James Carville, who had the following to say:

"I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone."

Deep Demographic Doo-Doo

Recent demographic forecasts suggest that world population growth will continue to slow and level off around 2050 and then begin to decline.

Should this occur it would be difficult to overstate the implications. As Gross puts it "capitalism itself may be in part dependent on a growing population".