FIG Topics of Interest



When lawmakers return to Capitol Hill next week, they will begin considering the Pentagon’s colossal budget request. The Defense Department is asking Congress for $718 billion in its fiscal 2020 budget, an increase of $33 billion or about 5% over what Congress enacted for fiscal 2019.

The budget is composed of a $544.5 billion base budget, $9.2 billion for emergency border funding and $164 billion for overseas contingency operations funding, aka the war budget.

The Navy and Marine Corps request $205.6 billion, up $9.9 billion from fiscal 2019; the Air Force calls for $204.8 billion, up $11.8 billion from the last request, and the Army asks for $191.4 billion, up $12.5 billion from fiscal 2019.

Congress has until Oct. 1 to approve the budget or negotiate a new funding deal with the White House.

Click here to download a pdf of this article, Missile.pdf


The central bank appeared to act to stem declines in the yuan on Friday, when it set the fixing for the currency by more than analysts expected. President Xi Jinping also helped by pledging against currency depreciation that harms other nations.

The PBOC’s move to offer targeted medium-term loans was interpreted as shift back to neutral for monetary policy, indicating the central bank’s ambition to keep money moving through the system while holding back market expectations for broader easing.
It’s a pivotal moment for a world-beating rally in China that’s been underpinned by expectations of more stimulus and ample liquidity. A barrage of earnings from the nation’s largest firms could swing sentiment either way, though the picture isn’t encouraging so far. Traders are also eyeing next week’s trade talks with the U.S., though the closure of China’s markets for a three-day holiday from Wednesday will likely dampen trading.

Click here to download a pdf of this article, Missile.pdf


At November’s biennial air show in the southern city of Zhuhai, the biggest state-owned missile maker, China Aerospace Science and Industry Corporation Ltd, screened an animation showing a hostile “blue force,” comprising an aircraft carrier, escort ships and strike aircraft, approaching “red force” territory.

On a giant screen, the animation showed a barrage of the Chinese company’s missiles launched from “red force” warships, submarines, shore batteries and aircraft wreaking havoc on the escort vessels around the carrier. In a final salvo, two missiles plunge onto the flight deck of the carrier and a third slam into the side of the hull near the bow.

The fate of the ship is an unmistakable message to an America that has long dominated the globe from its mighty aircraft carriers and sprawling network of hundreds of bases. China’s military is now making giant strides toward replacing the United States as the supreme power in Asia. With the Pentagon distracted by almost two decades of costly war in the Middle East and Afghanistan, the Chinese military, the People’s Liberation Army (PLA), has exploited a period of sustained budget increases and rapid technical improvement to build and deploy an arsenal of advanced missiles.

Many of these missiles are specifically designed to attack the aircraft carriers and bases that form the backbone of U.S. military dominance in the region and which for decades have protected allies including Japan, South Korea and Taiwan.

Click here to download a pdf of this article, Missile.pdf


Over the last three years, around 3 million Americans over 55 joined or rejoined the workforce, federal data show. The addition of these older workers not only contributed to economic growth, experts say, but helped stop a national decline in the share of adults working or looking for work.

The trend may have run its course. After adding 5 million new and returning workers of all ages from 2016 to 2018, the U.S. labor force shrank during the first three months of this year. (Graphic:

From healthcare to manufacturing, companies in places like Wisconsin are taking longer to hire as they struggle to find workers; some have delayed projects, others have become more willing to hire ex-convicts and less experienced workers bypassed when labor markets were looser, local officials say.

Blue-collar workers are putting in more hours, data show, while overall labor productivity is increasing. Nationally, wages are rising.

The upshot, according to policymakers, business executives and labor experts interviewed by Reuters, is that the labor market may be nearing its limits

Click here to download a pdf of this article, Missile.pdf


In 1938, in the midst of a long campaign to bring China under Communist Party rule, revolutionary leader Mao Zedong wrote: “Whoever has an army has power.”

Xi Jinping, Mao’s latest successor, has taken that dictum to heart.
He has donned camouflage fatigues, installed himself as commander-in-chief and taken control of the two million-strong Chinese military, the People’s Liberation Army. It is the biggest overhaul of the PLA since Mao led it to victory in the nation’s civil war and founded the People’s Republic in 1949.

Xi has accelerated the PLA’s shift to naval power from a traditionally land-based force. He has broken up its vast, Maoist-era military bureaucracy. A new chain of command leads directly to Xi as chairman of the Central Military Commission, China’s top military decision-making body. Operational leadership of naval, missile, air, ground and cyber forces has been separated from administration and training - a structure that Chinese and Western defense analysts say borrows from U.S. military organization.

Click here to download a pdf of this article, Missile.pdf


Washington’s lack of attention to European affairs is a costly mistake. Germany’s refusal to reflate its economy and support the continent’s growth is killing the market where the U.S. sold $63.4 billion worth of goods in the first two months of this year — one-fourth of all U.S. goods sales abroad.

That compares with a pitiful $15.6 billion of American exports to China during the same interval. And those sales were down a whopping 20.4 percent from the first two months of last year.
Washington’s priority should be to rapidly balance its trade accounts with China. It’s very early days to say that progress is being made, but a 9.2 percent decline in Beijing’s trade surplus with the U.S. in the first two months of this year could be a good beginning.
China should quickly get out of the huge U.S. trade problem it created for itself. Beijing does not need that debilitating liability while it is trying to manage the issues of Taiwan, Tibet, contested maritime borders in the South China Sea, the explosive mix on the Korean Peninsula, a strategic China-Japan-Korea triangle and a sprawling “Belt and Road” global infrastructure investment initiative.

Distracted by China trade, the U.S. economic and political officials had nothing to say to counter that widely shared view during last week’s IMF-World Bank spring session in Washington, D.C.

Germany, as a result, got off scot-free because the prevailing opinion held that Berlin, or anybody else, could not prevent a decline of the world economy while the U.S. continued to undermine the world order resting on a multilateral trading system and a peaceful resolution of global hot spots.

Still, to deflect any further pressures, Germany’s finance minister promised 10 billion euro in annual tax cuts and incentives to boost research and development investments by 1.25 billion euro — a hypothetical total amounting to a derisory 0.3 percent of German GDP supposed to bring the country back to a 1.5 percent growth in 2020.

That’s ridiculous. Washington should talk with the Germans to come up with a credible plan of relaunching the EU economy. Otherwise, Berlin will be under relentless pressure to move during the next G-20 summit — the world’s key economic forum — in Osaka, Japan on June 28 and 29. Berlin’s long-suffering friends like France and Italy should join in, along with the International Monetary Fund and the Organization for the Economic Cooperation and Development.

It would be a great pity if Germany continued to blunder with blatantly bad faith nonsense. Indeed, how could a $3.8 trillion economy, presently sliding into an estimated 0.5 percent growth recession, swiftly recover to a 1.5 percent upturn next year on the strength of a puny 0.3 percent of GDP (hypothetical) fiscal stimulus?

Click here to download a pdf of this article, Missile.pdf


In Germany, the factory PMI came in at 44.5 in April, little changed from March and short of economists’ expectations. Demand was particularly weak in the key auto industry amid “some hesitancy among U.K.-based clients,” IHS Markit said. There was better news from the services index, which jumped to a seven-month high of 55.6, while employment in the sector rose.
Fresh signs of malaise contradict recent cautious optimism from ECB policy makers that the 19-nation economy will soon turn the corner. Governing Council member Ewald Nowotny said on Wednesday the economy should at least stabilize in the second half of the year.
Weakness remained visible in other parts of the global economy. Japan’s exports shrank for a fourth straight month in March and manufacturing there continued to decline this month. That may change if the reasons for optimism about the Chinese economy seen in some recent figures is borne out in the coming months.

Click here to download a pdf of this article, Missile.pdf


The draft includes subsidies for new-energy vehicles, smartphones and home appliances, said the people, who asked not to be named because they aren’t authorized to discuss the plan. The proposals are at a consultation stage with other government branches, and there is no guarantee that they’ll be approved, the people said. The National Development and Reform Commission, which is said to have drafted the plan, didn’t immediately respond to a fax seeking comment.

-An increase in the number of automobile licenses 

-A waiver on car-ownership quotas for families who don’t own vehicles

-Subsidies for people who exchange vehicles that are as many as 10 years old for electric, hybrid or fuel-cell vehicles

-No limits or traffic controls for new-energy vehicles

-Encouraging banks to increase auto loans in tier-3 cities or below

-Considering deducting auto purchases from personal income tax

-Subsidies of up to 13 percent for a home appliance purchase at a maximum of 800 yuan ($120) per purchase

-Exemption of value-added taxes for used-car transactions until the end of 2020


It’s notoriously difficult to own a car in major Chinese cities because of quotas put in place to tackle traffic congestion and air pollution. In Beijing, the annual new vehicle quota dropped to 100,000 in 2018, and each licensed gasoline-fueled car has to be idle one day a week. That’s prompted the government to provide incentives for motorists to drive new-energy vehicles -- including pure-battery electrics, plug-in hybrids and fuel-cell cars.

Existing ownership restrictions have hindered the growth of car sales, Cui Dongshu, secretary-general of the China Passenger Car Association, said in February. In Beijing and Shanghai, for example, drivers wanting a license plate for a gasoline-powered car must enter a years-long lottery or pay as much as 90,000 yuan.



Click here to download a pdf of this article, Missile.pdf


ECB policy makers aren’t opposed to President Mario Draghi’s move to examine the impact of the measure, but many don’t yet see merit in a switch to so-called tiering to exempt some bank excess reserves from the deposit rate, said the people. They didn’t want to be identified because such discussions are confidential.

Draghi didn’t consult the Governing Council before his remarks last month. While he didn’t mention tiering by name, the comments prompted speculation that the ECB could introduce versions of it which are already used in Japan, Switzerland and Denmark. When the ECB last cut its rate, in March 2016, it rejected such an approach as too complex.
Some governors have already publicly expressed personal skepticism about any softening of the negative-rate tool. Lithuania’s Vitas Vasiliauskas said in an interview that he isn’t keen on tiering, and Dutch central bank chief Klaas Knot said the policy has stimulated credit growth, and other considerations are “a little bit outside the realm of monetary objectives.”

Click here to download a pdf of this article, Missile.pdf


“This is an element of hidden leverage that is not appreciated,” says Jeffrey Snider, global head of research at Alhambra Investments. “We are eventually going to have a shock.”

While dovish comments by the Federal Reserve and other central banks have prompted investors to pile back into bonds, two troubling developments could make buyers uniquely vulnerable to deep and painful losses, they say. One is the sheer amount of ultra-low yielding debt, which means investors have almost no buffer in the event prices drop. That’s compounded by the worry liquidity will suddenly evaporate in a selloff and leave holders stuck with losses on positions they can’t get out of quickly.

Granted, nobody is predicting when things will turn ugly in the bond market, and history hasn’t been particularly kind to the doomsayers. Still, the risk is real, they say, and caution is more than justified. By one measure, the amount of investment-grade bonds has doubled to $52 trillion since the financial crisis. And yields have, on average, fallen to roughly 1.8 percent, less than half the level in 2007. If they were to rise by a mere half-percentage point, investors could be looking at almost $2 trillion in losses.

These worries aren’t new, of course, but they’ve attracted fresh attention as the amount of negative-yielding debt has climbed past $10 trillion. To some, it’s a sign investors have gotten a little too complacent and could easily get blindsided once growth and inflation start to pick up.

One way to assess just how much risk has been built into the bond market is by looking at something called duration. Simply put, it measures how much the price of a bond moves relative to a move in its yield.

Currently, the duration of $52 trillion of investment-grade bonds tracked by Bloomberg globally stands at about 7, close to a record high. (Bonds with low yields and long maturity dates tend to have the highest duration.) That means if yields rose a full-percentage point, the bonds would lose 7 percent of their market value. For a half-percentage point jump, that works out to 3.5 percent, or a $1.8 trillion loss.

“The debt load in the world is so high now that it can’t withstand any historically-normal size of interest rate increases anymore,” says Stephen Jen, chief executive officer of Eurizon SLJ Capital.

Click here to download a pdf of this article, Missile.pdf