These won’t come as a big surprise to regular readers, but Credit Suisse provided their three biggest risks to the economy currently. Their comments add some nice perspective to the three risks that I have been discussing for the last few months:
“(1) Co-ordinated fiscal tightening, with fiscal tightening of c1.8% of GDP in the US for 2012: Congress will vote on the report by the Super Committee on the targeted $1.2tn cut in the budget deficit. The report is due on November 23 –yet, our US rate strategists think the real deadline by which a deal has to struck is November 10 (in a way that the proposals can be evaluated by the CBO and put into legislation). So far, there is little sign of agreement between Republicans and Democrats. If they fail to reach a deal, there will be automatic cuts to discretionary spending worth $1.2tn and applied across the board.
(3) China housing turnover: we are worried that the preconditions are in place for a sharp fall in Chinese housing starts. According to our commodity analyst TrinaChen, housing starts are running 80% above demand and our property analyst Jinsong Du highlights that property stock per capita in urban areas has risen to 27sqm from 10sqm over the last decade. Housing accounts for 10% of GDP directly, but double this once we add the indirect effects. Our economists highlight that 29 October’s State Council meeting re-emphasised tightening on property, and urged local governments to strictly implement tightening measures. In order to facilitate property price correction, it plans to further increase land supply for privatehousing.”
Source: Credit Suisse
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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