What you need to know about China’s inclusion in IMF currency basket

IMF’s big decision won’t have much impact outside of China

“It’s not like the SDR is the MSCI world index, where if a company is included, a bunch of portfolio managers need to go out and buy it,” 


The International Monetary Fund’s executive board on Monday decided to include the Chinese yuan—also known as the renminbi—in its Special Drawing Rights basket. The decision was widely expected after the organization’s staff recommended inclusion a few weeks ago.

But the significance of this decision is still unclear to many, partly due to the complexity of the forces that government international reserves, and partly because the SDR’s role in the global economy isn’t widely understood.

See: Euro to see biggest drop in IMF basket to make way for the yuan.
Here’s what you need to know about the yuan, the SDR and the potential fallout of Monday’s decision:

What’s an SDR good for?
Special Drawing Rights are an artificial reserve asset created for central banks in the late 1960s, and as such, they’re largely a relic of the Bretton Woods era.

When first introduced, SDRs were meant to rectify a shortage of two important international reserve assets: gold and the U.S. dollar. But its usefulness was greatly diminished by the fall of Bretton Woods, and the increasing availability of credit through international financial institutions.

Central banks don’t use the SDR as a yardstick for determining the composition of their foreign-currency reserves. These are much more heavily influenced by cross-border trade, said Karthik Sankaran, a director of global strategy at Eurasia Group.

An analysis of the most recent IMF data on central-bank reserves shows that the dollar comprises a much larger percentage of global central-bank reserves than its SDR weighting would suggest. The SDR weightings are set every day by the IMF.

Here’s blogger Macro Man’s side-by-side comparison of SDR weightings versus reserve holdings by central banks, as represented by COFER, or composition of official foreign exchange:

COFER              SDR
USD 63.74%    48.05%
EUR 20.49%   32.60%
GBP 4.68%     12.17%
JPY 3.83%      7.18%
Will this lead to a surge in demand for the yuan?
Central banks have already started to accumulate yuan reserves to reflect China’s dominant role in cross-border trade—but this has been limited by continued Chinese government controls over the currency and yuan-denominated debt.

So most currency strategists believe the yuan’s inclusion in the SDR basket won’t significantly increase central-bank demand for yuan. Actually, the decision has little real significance outside of China.

“It’s not like the SDR is the MSCI world index, where if a company is included, a bunch of portfolio managers need to go out and buy it,” said Greg Anderson, global head of currency strategy at BMO Capital Markets. “This is about prestige, really.”

Will the yuan dethrone ‘king dollar’?
The yuan’s inclusion in the SDR basket will bolster its reputation as a global reserve currency. But regardless of Monday’s decision, it’s far from challenging the dollar’s roll as the world’s premier reserve currency.

The yuan is only the fifth most-used currency for settling international payments, according to the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, which tracks the yuan. Only a fraction of global central-bank reserves are denominated in yuan.

This will likely change as China lifts its controls on the currency’s valuation and usage. In August, policy makers abruptly shifted their methodology for setting the onshore yuan’s daily reference rate to a more markets-based approach, which led to a sharp depreciation in the currency. Though many restrictions on capital flows remain, policy makers have begun to unwind some of these restrictions.

Daragh Maher, U.S. head of currency strategy at HSBC, believes that as China opens its economy and capital account, the share of international reserves denominated in yuan will continue to grow. But he said he couldn’t envision the Chinese currency supplanting the dollar any time soon.

“It will be a diversification currency alongside sterling and the yen,” he said.

Will China stick with reforms?
Chinese policy makers have repeatedly assured the world that they plan to slowly relinquish control over the yuan. Measures to open markets over the past year have apparently been sufficient to allow the currency to meet the IMF’s definition of “freely usable”—a requirement for inclusion in the SDR.

But now that China has achieved its goal of SDR inclusion, many market strategists—and U.S. policy makers—are worried that China will reverse course.

But Sankaran believes China will continue with gradual liberalization, because it’s in their interest to do so. The country has a large stock of private savings that is currently largely invested either in domestic equities or real estate, creating problems with overvaluation. Broadening the palette of investment options makes sense, provided this is done through institutional channels, limiting the risk of individual flight.

How does the U.S. feel about this?
Over the past two decades, U.S. lawmakers have often accused China of manipulating its currency to keep it artificially weak, making the country’s exports more competitive and contributing to the country’s rapid growth.

Back in the spring, Treasury Secretary Jacob Lew said he believed the yuan was unfit for inclusion in the SDR, saying the country needed to further ease restrictions in its currency to meet the criteria of “freely usable.”

Now that the yuan has been admitted, the U.S. looks silly for ever opposing this, Anderson said.

And that embarrassment could grow if the yuan continues to weaken as its exposed to more market forces.

“One of the ironies is that U.S. is going to want [China] to intervene more, not less, going forward,” Sankaran said.


Your Company Needs Independent Workers, at least start with an independent NED in your Board, because to be really INDEPENDENT matters

Your Company Needs Independent Workers, at least start with an independent NED in your Board,

because to be really INDEPENDENT matters

There has been a lot of debate over the past year about the merits of the “gig economy”—where people work on a project or contract basis instead of holding down jobs as traditional full-time employees. Presidential candidates have weighed in on the pluses and minuses of “gig” or contingent work. Lawsuits against on-demand work companies like Uber and Handy are widely covered in the press while investors continue to pour billions of dollars into similar startups.

For the most part, these discussions and debates have focused on companies like Uber and Lyft that connect independent contractors with customers to provide consumer services. More often ignored is the growing population of contingent workers, including independent contractors, statement-of-work-based labor, and freelancers who provide services to corporations. But this is a growing population of workers, many of whom are highly skilled.

Attracting, retaining, and managing these highly skilled workers will require new ways of thinking about talent management and the role that external talent plays. Companies will need to become “the client of choice” for these high-end contractors.

Recent research illustrates the growing corporate use of contingent workers:

Our own research reinforces these findings. The MBO Partners 2015 State of Independence workforce study found that 6.4 million Americans report that they provide professional services to corporations on a contingent or contract basis. Of these, about 2 million report earning $75,000 or more last year.

Not only is this group large—by way of comparison, this is substantially more than the roughly 4 million Americans who work in the automotive industry, including those working in car dealerships and automotive parts retailing—it’s also growing. Our study shows the number of contingent workers providing professional services to corporations has been growing at about three times the rate of overall employment over the past five years.

Two broad shifts—one on the employer side, the other on the worker side—are driving this boom. First, companies increasingly need a flexible workforce to compete globally. In our research we heard from company leaders that their businesses are turning to independent workers to increase business flexibility and agility. Independent workers allow them to quickly and efficiently scale staffing up and down to meet shifts in demand and changing business circumstances in an increasingly volatile and always-changing global economy. Businesses are also turning to highly skilled independent workers due to difficulties in attracting and retaining employees with hard-to-find specialized talents.

Second, many skilled professionals want independence and are going into contingent work to gain greater work/life flexibility, autonomy, and control over their careers. These highly talented professionals are realizing they are able to go off on their own and make as much or even more money — so they’re doing just that.

These professionals are in demand, and they know it. According to our research, 83% say they have a lot of choice or some choice over who they work with. Only 17% report having little or no choice over who they work with. In other words, these talented professionals can choose what to work on and with whom to work.

So what do these highly skilled independent workers want from their clients?

Being paid well and on time is obviously important to independent workers. But less obvious — and generally more important — are the non-monetary reasons independents choose their clients.

Skilled independents want the ability to control their lives, have meaningful work, and to be part of the team. When it comes to deciding which clients to work with, 96% selected “Value my work” as an important client attribute. Right behind was “Allow me control over my schedule” (89%) and “Allow me control over my work” (88%). “Treat me as part of the team” came in fourth. While independents value their autonomy and don’t want to be traditional employees, they also want to be treated as contributing team members.

Skilled independents are also looking for support services and administrative help. These include a reasonable legal agreement process, quick and efficient onboarding, timely responses to issues or questions about their arrangement.

Beyond administrative help, independents prefer clients that offer additional services that make it easier for them to be successful, such as job boards showing potential new opportunities, access to training programs so they can expand their skills, and opportunities to participate in networking events and meet-ups with client employees and other contract workers.

Companies have long strived to become employers of choice for full-time regular employees — the surge in employer rankings and websites like Glassdoor.com and Vault.com demonstrate the importance of doing that. But with non-employees increasingly bringing much-needed talent, companies need to broaden their definition of what it means to be a “great place to work.”


Pros and Cons of replacing paper currency with e-currency

Originally posted on mirco balatti:

Paper currency is deeply ingrained in the public’s image of government and country, and any attempt to change long-standing monetary conventions raises a host of complex issues. Despite huge and ongoing technological advances in electronic transactions technologies, it has remained surprisingly durable, even if its major uses seem to be buried in the world underground and illegal economy. There are many arguments for not disturbing the status quo, ranging from the importance of seigniorage revenues to civil liberties arguments.

Nevertheless, it is important to ask whether currency in paper form has outlived its usefulness. And although today’s crypto-currencies fall far short of being true currencies – for one thing their prices are simply too volatile – the underlying technologies may ultimately strengthen the menu of electronic payments options. With many central banks now near or at the zero interest rate bound, there are increasingly strong arguments for exploring how paper…

View original 107 more words

FINTECH, could Square’s business be a Wall Street darling?

A tiny part of Square’s business could make it a Wall Street darling

Square finished a bumpy ride to the public markets on Thursday, losing half of its value in its IPO pricing and then popping 45% on its first day of trading.

As the IPO buzz and excitement settles, questions about the digital-payments company’s business prospects are taking center stage.

Square’s revenue growth is slowing while losses widen, and some wonder whether its core payment-processing business is getting commoditized with shrinking margins.

But there’s a tiny part of Square that may hold the key to taking the company beyond its core business: Square Capital.

Square Capital is its cash-advance unit that has processed more than $300 million since its launch in May 2014.

It’s a tiny portion of Square’s overall business — looped under “software and data products,” which accounts for less than 4% of Square’s total sales — but it is believed to be growing significantly faster, with richer-margins than the rest of Square.

And as Square moves forward as a public company, Square Capital will play a bigger role convincing investors of its future upside.

Gillette’s razor-blade model

While the nifty credit-card swipers that plug into smartphones and tablets are often touted as evidence of Square’s innovation, the company’s future success may rely on the more old-fashioned business of making loans.

“Square can monetize [Capital] very efficiently. It allows them to build up a high-margin revenue stream to complement the traditional lines of business,” Battery Ventures’ general partner Roger Lee told Business Insider.

Battery Ventures is not a Square investor.

Square Capital follows a traditional merchant cash advance (MCA) model that lets pre-qualified Square merchants borrow money and pay back gradually. Borrowers return a small, fixed percentage of its daily sales, meaning that the more you sell, the more you return, and vice versa on a slow day.

Square makes money by charging a small percentage of premium, usually around 10% of the total, on top of the advances. It also charges a service fee when the advance comes through a third-party lender. In any case, it’s a highly efficient, low-cost business model. “Software and data products” had an over 60% gross margin vs. 36% gross margin for its core payments business.

It’s also growing fast. The broader Software and Data Products group generated $35.6 million in revenue in the first nine months of 2015, a 6X jump from the same period last year, while doling out $1 million a day to its merchants. The product is proving to be sticky, too: Nearly 90% of the merchants are choosing a repeat advance, according to Square’s prospectus.

Square deviceCourtesy of Square Inc.

Battery Ventures’ Lee said that the model could potentially evolve into something more significant that somewhat resembles Gillette’s classic razor-blade model — in which the commoditized razor grabs market share, while the higher-margin razor blades rake in the real profits.

“Think of the credit-card reader as the razor, and the loan as the razor blade,” Lee added. “The reader is basically an enabler of a much more interesting lending business. It’ll drive their long-term profitability and equity value.”

Square seems aware of this, too. Just recently, it poached top Yahoo executive Jackie Reses as the new head of Square Capital. In its IPO prospectus, Square points out the advance service as a potential future growth driver.

“Although Square Capital currently does not contribute a significant amount of revenue to our business relative to our payments and POS services, our software and data-product revenue, including revenue derived from Square Capital, has grown quickly, and we expect these products will contribute a larger portion of our total revenue over time,” it writes.

Huge market opportunity

Square’s primary market is small-business owners, and Square Capital solves a problem every small-business owner struggles with: cash flow.

Banks have traditionally overlooked small-business loans because of their low margin and high-default risk nature.

But a number of online-lending and cash-advance services in recent years have made it cheaper to acquire and process loans/advances, while using better technology and data analysis to lower default risks.

Square Capital, for example, only extends the advances to its existing users, whose financial data is already shared with Square. That allows it to have a full understanding of the merchant’s sales history and future projections, and safely determine the cash-advance terms accordingly.

This is a market that’s been hit particularly hard after the recession and never fully recovered, leaving a gaping hole for services like Square Capital to come in. The value of loan originations to US small businesses has been nearly cut in half since 2007, while banks are still slow the embrace this market.

“The 2008 financial crisis left hundreds of thousands of small businesses with pent-up demand for working capital to grow their businesses. Only 2.4 million traditional loans were originated to businesses with $1 million or less in revenue in 2013, down 54% from 2007,” BI Intelligence writes in a report.

Value Of LoansBI Intelligence

Still a long way to go

As Square admits in its S-1 filing, Square Capital is still in its early stages. In some ways, it’s also a limited product because it’s only available to the small business owners that use Square, and you can’t take out multiple advances before paying back your initial one.

“Square’s merchants are smaller,” IVP’s general partner, Eric Liaw, said, estimating that the average Square Capital advance to be less than $30,000. Online-lending marketplaces, like OnDeck, in which Liaw’s invested in, typically make six-figure loans, resulting in higher fees for the company processing it.

Square will certainly want to expand its lending to a broader swath of businesses, but that will require licenses with stricter conditions and more regulatory compliance, all of which mean increased costs.

“As our business continues to develop and expand, we may become subject to additional rules and regulations. For example, if our Square Capital program shifts from an MCA model to a loan model, state and federal rules concerning lending could become applicable,” Square wrote in its S-1.

Still, Square Capital seems to be in a good place with more room to grow, especially if Square can continue to expand its merchant base.

“The product itself will have unique advantages in the market, and it’s a big market,” Lee said. “If they focus on it, and execute it, it can be a big success for them.”


CEO’s guide to gender equality

CEO’s guide to gender equality

The case for gender equality is strong. Why is progress so slow?

Progressive executives know that gender equality is not only the right thing to do but also the smart thing. That’s why more CEOs, heads of state, and university leaders are committing themselves to gender-equality goals for the institutions they lead.

But gender equality is proving difficult to achieve. How can companies and public institutions move more quickly? This CEO’s guide synthesizes multiple sources to make quick sense of a complex issue.

The promise of gender equality

Gender equality gets a lot of attention these days, and for good reason: it is not only an issue of fairness but also, for companies, a matter of attracting the best workers, at least half of whom are women. There is also considerable economic value at stake for companies and nations.

A new study by the McKinsey Global Institute finds that the world economy could add trillions of dollars in growth during the next ten years if countries met best-in-region scores for improving women’s participation in the labor force (Exhibit 1). Countries in Latin America, for example, would aim to achieve Chile’s annual rate of increase, 1.9 percentage points, while East and Southeast Asian countries would try to match Singapore’s improvement of 1.1 percentage points a year.

The difficulty

Big as the prize may be, gender equality still eludes companies around the globe. Despite modest improvements in the past few years, women are underrepresented at every level in the corporate pipeline—especially the senior level (Exhibit 2).

Why is progress in gender equality so hard to achieve? A number of factors are involved, but one leading reason is undoubtedly unconscious bias. Film actress Geena Davis believes that it results, in part, from lopsided male representation in television and film—a long-standing trend observed by the Institute on Gender in Media that she founded. “When we present the data to studios and content creators,” she says, “their jaws are on the ground. In family films, the ratio of male to female characters is 3:1. Shockingly, the ratio of male to female characters has been exactly the same since 1946. Of the characters with jobs, 81 percent are male.”

Perception gaps may also be an obstacle. McKinsey research on diversity shows that fewer men than women acknowledge the challenges faced by female employees at work. For instance, when asked whether “even with equal skills and qualifications, women have much more difficulty reaching top-management positions,” the gender divide was striking: 93 percent of women agreed with the statement, but just 58 percent of men. And while just 5 percent of women disagreed with the statement, some 28 percent of men did (See exhibit 3).

What’s more, women hear mixed messages about their own careers. “Think of a career like a marathon,” says Facebook chief operating officer and Lean In founder Sheryl Sandberg. “Long, grueling, ultimately rewarding. What voices do the men hear from the beginning? ‘You’ve got this. Keep going. Great race ahead of you.’ What do the women hear from day one out of college? ‘You sure you want to run? Marathon’s really long. You’re probably not going to want to finish. Don’t you want kids one day?’ The voices for men get stronger, ‘Yes, go. You’ve got this.’ The voices for women can get openly hostile. ‘Are you sure you should be running when your kids need you at home?’”

The solution

As top executives think about pressing forward with their own gender initiatives, they can start with four prescriptions.

Get committed. The first might seem self-evident: change initiatives must be a strategic priority to have any chance of success. Yet gender equality was a top-ten strategic priority for only 28 percent of companies in 2010, when a third didn’t have it on the strategic agenda at all. The situation improved somewhat by 2015, but there’s still a long way to go—especially given the clear link between leaders’ role modeling and time allocation—and the success rate of transformations, as Exhibit 4 shows.

Broaden your action. Our research shows that gender equality requires executives to intervene across a broad range of factors, setting in motion disparate resources and people for years at a time. The focus in these interventions must be to help women become better leaders—and to design conditions under which they can. Crucial aspects include sponsoring (and not just mentoring) women, neutralizing the effects of maternity leaves on career advancement and wage increases, and evolving the criteria companies use for promotions to include a diversity of leadership styles. To learn how eBay embarked on a journey to bring more women into its top ranks, see “Realizing the power of talented women.”

Hold challenging conversations. Companies that make progress tend to hold a series ofchallenging conversations about gender issues among their executive teams. The following five questions can help spur these discussions:

  1. Where are the women in our talent pipeline?
  2. What skills are we helping women build?
  3. Do we provide sponsors as well as role models?
  4. Are we rooting out unconscious bias?
  5. How much are our policies helping?

Sweat the small stuff. Ian Narev, CEO of the Commonwealth Bank of Australia, notes that gender equality requires a bias for action. “I like focusing on processes because it helps us get past any ‘warm and fuzzy’ elements of diversity and into action levers. For example, we discovered we had an anachronistic process that classified women on maternity leave as ‘over quota, unattached,’ which, among other things, essentially meant they couldn’t keep their cell phones or laptops. This policy may not have been initiated by anyone still at the bank, but it had gone unexamined and was preventing us from staying in contact with parents on leave and therefore [from] allowing us to work with them to create more flexible return options. Fixing it was easy; spotting it was harder.”

Are we on the way to creating gender equality in the corporate world? Present trends may not be encouraging, but greater commitment from CEOs, combined with a willingness to stay the course on big transformational-change projects, could help finally resolve an issue that’s long overdue for fixing.


10 themes will dominate world finance markets 2016

10 themes will dominate world finance markets 2016

The experts at Goldman Sachs have begun rolling out their outlooks for 2016.

In a client note on Thursday, they outlined what they believe will be the top-10 themes across global markets in the new year, which inform their various forecasts for stocks, bonds, commodities, currencies, and everything else in between.

“Growth has consistently disappointed over the past several years, but this has not prevented risky assets from increasing substantially,” the strategists, including Charles Himmelberg, wrote. “In 2016, we expect activity to continue to expand in the advanced economies, led mostly by the consumer.”

For stocks, Goldman forecast that the S&P 500 would end next year at 2,100, implying only a 5% return from current levels. And, betting on the US dollar, and against the euro and the yen, is Goldman’s top trade recommendation for 2016.

The themes reiterate some of the same big discourses of 2015, like monetary policy divergence, lower-for-longer commodity prices, and modest S&P 500 returns.

These are the 10 themes from Goldman’s report.

1. Stable global growth

1. Stable global growth

Goldman Sachs

The strategists project that global GDP will rise to 3.6% next year from an expected post-crisis bottom of 3.2% in 2015. This should calm concerns that developed markets are stuck in “secular stagnation,” or slow growth with little investment and excess saving.

They wrote that “for investors, the relative stability of the growth outlook for both DM and EM economies should be sufficient to offset concerns about the downside risks implied by this year’s slowdown in global manufacturing activity, tightening of US financial conditions and prospective rate hikes by the Fed.”

Source: Goldman Sachs

2. Lower inflation, but not by as much as expected

With the unemployment rate at a seven-year low of 5%, inflation is not likely to fall by as much as markets have priced in. That’s because labor-market slack is less, and the unemployment rate is dipping to a range that would push inflation higher.

“As US unemployment rates reach our forecast of 4.6%, we expect to see an unwind of the deflation premium that is still priced into rates and inflation markets,” the analysts wrote.

“In sharp contrast to the loose intuition that ‘low commodity prices are deflationary’, commodity-price inflation could easily exceed 20% next year,” they forecast.

Source: Goldman Sachs

3. Sustained monetary policy divergence

“While one of the lessons of 2015 is that the Fed will likely be cautious about giving a green light to large and rapid US Dollar appreciation, the resilience of the US economy in the face of the substantial Dollar appreciation since mid-2014 gives us confidence that the Fed will ultimately tolerate further Dollar strength as it tightens policy through 2016,” the analysts wrote.

On the other hand, the European Central Bank and the Bank of Japan would still be dovish amid the “fragility of their recoveries.”

Source: Goldman Sachs

4. Lower oil prices

4. Lower oil prices


US oil inventories are at the highest levels for this time of year in nearly a century, and the risk that they could reach full capacity is growing.

“On current trends, our team does not expect the limits of storage capacity to be reached,” the analysts wrote. “But there is always the risk that demand will unexpectedly fall short (or that supply will surprise), at which point the only way to clear the excess supply in the physical market for oil is with sharp price declines.”

Source: Goldman Sachs

5. A broad decline in commodity prices, in varying degrees

5. A broad decline in commodity prices, in varying degrees


The rationale here is that supply of CapEx commodities like steel and iron ore is harder to take off the market. The high fixed costs of facilities like mines makes it more expensive to suddenly shut them down, and so producers are more willing to continue producing if there’s demand.

But OpEx commodities like shale oil can cheaply be removed and restarted, although that means producers have less incentive to do so.

They wrote: “For 2016, we expect the ‘lower for longer’ theme for commodity prices to continue, but with the additional ‘demand tilt’. Namely, that China’s efforts to rebalance demand from investment to consumption should reduce demand for CapEx commodities (such as steel, cement, and iron ore) much more than it reduces demand for OpEx commodities (such as energy and aluminum).”

Source: Goldman Sachs

6. The global savings glut is reversing

6. The global savings glut is reversing

Goldman Sachs

The “global savings glut,” a term coined by former fed chair Ben Bernanke, was created as oil prices rallied in the late 2000s.

The strategists wrote: “The surges in petrodollar savings in the pre- and post-crisis periods are clearly visible. Equally visible, if less remarked upon, is the recent collapse of petrodollar savings following the collapse of global energy prices. In addition, Exhibit 7 shows the EM FX reserves, too, appear to have peaked (another source of saving cited by Bernanke). In our view, these savings declines are bearish for rates, just as they were arguably bullish for rates during the pre-crisis period.”

Source: Goldman Sachs

7. Limited stock market returns

Goldman’s price target for the S&P 500 in 2016 is 2,100, implying just a 5% increase from current levels.

“Due to the delayed timing of rate hikes, the downside risk to price-earnings multiples is probably greater this year because the positive growth surprises that would normally accompany rate hikes are arguably behind us. Since our US GDP forecast envisions mild deceleration in 2016, equities and other risky assets will likely bear the brunt of rate hikes without the usual buffer of better growth data.”

Source: Goldman Sachs

8. An emerging market slowdown

Oil-producing countries will continue to feel the pinch of low oil prices on their economies.

“But in EMs like Russia and Mexico, where currency depreciation has helped absorb the terms-of-trade shock, the remaining adjustments to government and private-sector balances should be correspondingly less painful,” the analysts wrote. “We are more concerned about places with pegged exchange rates (such as Nigeria and Saudi Arabia), where the burden of adjustment falls more squarely on government fiscal balances, domestic households and corporates (and in the limit, the exchange rate peg may itself be at risk).”

Source: Goldman Sachs

9. Low liquidity is the ‘new normal’

Bond market liquidity has been a hot topic and concern in markets this year.

“It is difficult to see how these market conditions can improve much in 2016. The trends in post-trade visibility and CDS volumes noted above are unlikely to improve, nor is the regulatory treatment of trading books likely to improve. On the contrary, recent evidence suggests that the burdens of balance sheet restrictions imposed by the new regulatory environment continue to mount. Nor do we see any reason to think regulatory remedies are imminent. We therefore do not have much reason to expect market liquidity conditions will improve in 2016.”

Source: Goldman Sachs

10. Corporate earnings may bounce back

Corporate earnings growth plunged during the Great Recession, rebounded from 2010 during the earlier years of the recovery, and are now soft again.

The last time this pattern happened was in the mid-to-late 1990s, and it was followed by a sharp drop. The similarity has some worried about what will happen next.

The analysts wrote: “Indeed, the stable-to-rising rising trend in median margins is one of the more remarkable features of the corporate sector during the post-crisis period. The disappointment is real revenue growth, which has twice experienced a mild ‘revenue recession’ during the post-crisis period after never having experienced one over the prior 30 years. Thus, assuming margins are maintained, we see ample scope for renewed growth of revenue and earnings via the corporate sector’s beta to firming US and global GDP growth.”


Diario dal Mondo

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