What's the impact of adding RMB into the SDR basket

Before discussing about what the impact to RMB after it is added into the SDR basket, it is worth explaining what SDR is. SDR stands for Special Drawing Right. According to the explanation of the IMF, "The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations."

Based on this explanation, we can see that adding RMB into the SDR basket does not directly give values to RMB; therefore, it may be able to add some chemicals into the foreign exchange market but in the long term, the value of RMB will still be determined by the central bank monetary policy and the Chinese trading position. The real impact of adding RMB into the SDR is setting up a milestone of international acceptance. Such action could allow the Chinese currency, the RMB, to integrate more into the global financial activities.

The addition of the RMB lowers the proportions of the other four currencies in the SDR basket. The USD has the smallest cut in its position, then the JPY, then the EUR, and the GBP has the largest cut in its position in the SDR basket. This shows how the IMF sees the recent changes in the global trading importance of the five countries. Moreover, in terms of the shares of the five different currencies, the USD still holds the dominating position, and the GBP and the JPY seem much weaker than the other three. In addition, as the SDR basket is reviewed every five years, if we can see an increase in the RMB's share in the SDR basket, then it will be much fairer to say that the Chinese currency has increased its global importance and acceptance.

Housing bubble?

For a long time, many economists have warned there is a big bubble in the Chinese property market and also explained the serious consequence when the bubble is burst. This week, Jianlin Wang, whose company is China's largest commercial property developer, also warned that the Chinese property market was the biggest bubble in history.

Such comments are not new at all, and as usual the market ignores the warnings and the sales in 52 cities in China experience a year-on-year increase in September despite the official data about the Chinese property market are not announced until early October. Moreover, there is a divergence in the property market between city tiers. The housing prices in first-tier and second-tier cities increase sharply while the housing prices in third-tier cities actually drops. However, the sales in first-tier cities fell 9% in September year-on-year. And the sales growth in second-tier cities maintained August's sales growth of 29%. The sales growth in third-tier cities recorded 31%, up from 23% in August. As the sales are measured in square meters, it does not precisely explain an accurate demand-supply relationship, but it could show some facts about the market. Such a decrease in housing sales in first-tier cities is possible to trigger a burst in the housing market bubble, but I don't think this will be the key trigger.

I think that the key trigger will happen in the banking sector. Some Chinese banks do not have strong financial positions and hold properties as part of their assets. In China, many people borrow mortgages from banks in order to buy their houses and flats. When these people have not finished paying back their mortgages, the banks are holding their properties. Once the property prices fall sharply, people may do what the Americans did in 2007 and 2008, then causing a collapse in the property market. However, there is another probability that if one bank has too many bad debts and a very high leverage ratio, it may sell the properties it holds and when the market realizes how many properties this bank holds, they may question if the banks hold most of the properties and if there is excess supply in cities, even the properties have been sold out quickly. This could drag down the property price sharply and cause a collapse of the property market.

I think the second state has a much higher probability as the prices in the Chinese property market is not very likely to fall spontaneously due to the Chinese culture, the fall of the prices has to have a trigger, and that trigger I think is from the banking sector.

What is the impact made by the oil cut this time?

The OPEC agreed to cut the production for the first time in the last eight years. The markets were surprised by such news and spiked up once the news was released. The markets had not expected the OPEC to come to any agreement, as the OPEC were very divided and Saudi Arabia previously raised its production to win a higher market share, which had caused friction within the OPEC further.

However, this is only a preliminary agreement and today's Russian production even increased by 400000. It is crucial to see the reaction from Russia to this message. If Russia agrees to cut its production, the later negotiation will be easier; if not, this agreement may be meaningless and end up nowhere closer to a final agreement. Moreover, in November, there will be another meeting about how much each country will agree to cut. This is a much tougher negotiation than having a preliminary agreement of the production cut. All countries in the OPEC want the cuts happening to them to be minimized and the cuts happening to others to be maximized in order to maximize their own market shares. The reality is some countries could gain higher market shares after the agreement and some countries may lose their current market shares; so if no country wants to make any sacrifice, the negotiation cannot end well. Therefore, I think that the difficulty of having the final agreement about the production cut is greater than expected.

If we can get a final agreement of oil production cut, there will be definitely a spike up in the energy sector once the news is released; however, the oil price will not rise back to $80 per barrel, given the green source energy is starting to replace some use of the oil and the economy is not booming and there are many economic uncertainties outstanding and some countries have stored oil as they bought more than needed when the price was low. Therefore, I see the future peak of oil price will be around 60$ and the oil price may gradually fall over time.

To conclude, I think there is a big probability that the agreement may finally fall apart and even if the final agreement about the oil production cut is made, the oil price will rise to its peak soon after the agreement and then gradually fall over time.

How bad is the idea of President Trump?

On the 26th of September, this Monday, people's attention has been drawn towards the first US presidential debate that people around the world consider the damaging impacts that may be caused to the world politics if Trump is elected, Martin Wolf even writes an article with the tile of "How the west might soon be lost"on the Financial Times (https://www.ft.com/content/804537f6-83d2-11e6-8897-2359a58ac7a5). Some people even start to compare the election of Adolf Hilter and this US election. I think that even if Trump is elected, there is a possibility of having a US president who does nothing beneficial or harm to the US as well as the rest of the world.

Firstly, when we compare Donald Trump's and Hillary Clinton's plans, Hillary Clinton has very detailed plans for domestic policies and foreign policies, but as some media claims, she does not give us a big blueprint of the US future; on the other hand, Donald Trump's slogan of "Make America Great Again" is his big blueprint of the American future, but as usual, he does not have detailed plans, though he claims they are secrets, I and many of others deeply doubt if he really has a plan. Therefore, we can assume Trump does not have a plan if he is elected.

Then when he is elected this November, which is possible, and he becomes the next US president with no detailed plans. What will he do as the US president? He does not have a lot of experience and may not even know how to exercise his power as the US president; therefore, he is forced into a position that he has to ask for help from others. His running partner is very conservative, which means he is not going to get very dangerous advice from his Vice President. He is unlikely to get any useful advice from the Democrats, so he will be dependent on the advice from the Republican party.

Now think from other Republican politicians' prospects, are they willing to give very useful advice to Donald Trump? I don't think so. Once Donald Trump was firstly pointed as the Republican nominee, he did not receive immediate support from the Republican party, which shows he is not the best option for some Republican politicians and these politicians will not endorse Trump and give him full support. In addition, what many Republican politicians consider more about is the election in four years. If they want to have their chances in the next election, they do not give Trump enough advice to make him seem successful, otherwise they will eliminate their chances to be elected in the next election. Therefore, Donald Trump is very likely to have his under-average four-year presidential term if he follows the advice given to him by his Republican colleagues.

Is Trump willing to follow the advice given to him? I don't think he has an option. From his speech, he has little political experience and faces a very complicated global political environment. People worry about his presidency because he changes his mind so often, which shows he may not know what exactly he wants to do. In this case, he is very likely to follow the advice given to him. And the Republican party will just provide enough advice to protect the nation and the party from falling apart.

Therefore, I think the presidency of Trump if he is elected will heavily depend on the support from the Republican party while the Republican party I think will not cooperate fully and give him full support. It is very likely to have no big change to the US economy and politics if Trump is elected, as the Republican party is not willing to see any good or bad change in the US.

Does the German government have the choice not to bailout Deutsch Bank?

The German Chancellor, Angela Merkel, ruled out the possibility of a bailout for Deutsche Bank. I think that it may be true for now, but is not realistic in the future. The Chancellor's claim is made based on the political reasons, as there will be an election next year and such claim could help her to win votes; however, such claim is not realistic under the current economic condition.

Previously Deutsche Bank had recovered relatively well from the Brexit crisis, because of people's belief in the central bank, in the German case, the European Central Bank, and more importantly the state. When people believe their deposits are backed by the state and the central bank, they will not be too worried when their banks have some financial struggling. There have been some reports suggesting that Deutsche Bank has a dangerously high leverage ratio and has some financial difficulties. The importance of Deutsche Bank to the German economy is significant, as the bank is the largest lender domestically.

Now it seems Deutsche Bank will not be bailed out when the time comes, then savers and investors will start to panic as they can no longer rely on the state support. This is why we see the stock price of Deutsche Bank slumps since Merkel ruled out bailout for the bank. The firms and individuals who borrow from Deutsche Bank may panic. If Deutsche Bank is forced into the position of filing bankruptcy, the debtors may need to pay back their loans earlier than their scheduled times and a rollover is definitely not an option. Then we are very likely to see more firms in Germany filing bankruptcy as the liquidity issue could become a major problem for the German economy when the biggest domestic lender is in a deep financial difficulty. Then the German government has to step in and bail out Deutsche Bank, as it is no longer a firm's individual problem, it becomes a domestic macroeconomic problem.

Therefore, I think that the German government eventually will be forced to bailout Deutsche Bank, as the bank's problem is very easy to become a national problem.

Profitability of banks

Many banks blame the ineffectiveness of the ECB's monetary policies has caused a fall in their profits; however, the Chairman of the European Central Bank, Draghi, blames that the banks should not blame the ECB but forget about their poor profitability, which is the fundamental problem.

Although great monetary policies can help to improve the banks' profitabilities, the banks' own profitabilities are key to the sustainable development of the banking industry. What determines the profitability of an ordinary firm? There are several important factors: competition, market growth, cost of production. Then we use these factors to judge our banking sectors. The competition in the banking sector varies across different parts. However, there is one common rule that larger institutions are more powerful than the smaller ones, which means the larger institutions face less competition pressure. In terms of market growth, recently the financial markets are less prosperous than before; therefore, some degree of decrease in the banks' profitability is reasonable. However the cost of production in the banking sector is much lower than that before 2008. The base rate is at the historically lowest point, and the quantitative easing programs have provided the markets with enormous hot cash inflows. From this angle, the profitability of the banking sector could increase. But if we change our angle, we could find out the cost of production actually increases. The cost of production in the banking industry also involves the market risks and the future expectations. When the market risk increases, the banks start to worry about potential losses, so instead of seeking for more profits, they tend to limit their potential losses, when more banks start to do so, the less risky financial markets will have excess demand, and then returns will drop sharply. Moreover, when the future expectations lower, the banks will start to worry and play less risky strategies which are likely to reduce profits.

Therefore, we can see that the limited banking sector growth affects the profitability growth in the banking sector; moreover, as the profitability in the banking sector is also dependent on the willingness of taking risk that when banks are willing to take high risks, they will make more profits if they succeed, and the current environment disencourages the banks to take high risks, leading to a reduction in the banks' profitabilities.

Dishonesty in the banking sector

Wells Fargo is the largest US bank by its market capitalization; however, the recent scandal showed it had been dishonest to its clients, as the bank opened more than 2 million deposit and credit-card accounts that may not have been authorized by their clients. The bank was fined 158 million dollars and the CEO of the bank has resigned from his advisory position at the Federal Reserve and the Department of Labor.

For decades, we have been trying our best to improve the banking sector. Firstly, bankers are required to follow moral and ethical regulations and most of our bankers are highly educated and pre-checked before they enter the industry. It seems these people are probably the best people we may get for our banking sector. Secondly, there are much more regulators in this sector than in other sectors, as the public and the governments realize that the banking sector has a very important position in the modern society. Thirdly, as the importance of the banking society has been generally realized, the public and the politicians have a lot of attention to this sector and the sector is not only under the watch by the regulators, but also by the general public as well. 

However, the scandals in the banking sector are mostly caused by banks' dishonest or irresponsible behaviors. Why could it happen? The banking sector is a very complex sector, which not only the outsiders cannot understand, the regulators are not able to look into every single detail in the sector. The Wells Fargo scandal is not a very complicated trick, but when the unauthorized accounts are hidden among the countless banking accounts, it is very easy to create such accounts but it takes awful a lot effort to find out these accounts. Not only the efforts are very different, but the payoffs of cheaters and watchdogs are also not at the same level, which is so obvious that there is no need for me to explain any more. 

Therefore, the complex banking networks increase the difficulty of regulations and maybe we should rejoice this scandal is fairly harmless, as we all know the banking scandals could become far more catastrophic.

Is it possible to use aids to make a company great?

The WTO accuses the EU has failed to eliminate illegal aids to Airbus. It seems that Airbus has taken a great advantage of the aids, as it has made a contract with Iran. If the aids given towards Airbus are forced to be stopped, it will be a piece of good news for its rival Boeing.

The aerospace industry requires huge amounts of resources and investments and the ones who can provide such great amounts of resources and funds are merely the governments. In addition, these amounts of resources and investments can be effective to generate the innovations and inventions in the sector faster. Therefore, it is unfair if companies are provided with different amounts of aids. However, it is the truth that we do not always have the fairness.

Moreover, when we look back in history, we are not hard to find out that there were many industries that had been primarily driven by the government fundings. The Volkswagen was founded under the government scheme of People's car that aimed to provide each man with a car. Such project did not just create cars for the Germans at the time, but also created enormous jobs and one of the largest car makers in the world. In addition, the current space industry is heavily backed by the government fundings.

As we can see so many successful examples, it is fair to say that public funding can make one industry grow at an incredible pace. However, it may seem like a gamble when a poor government concentrates its budget in one sector, as it can potentially achieve enormous economic growth, but the probability of running the government into bankruptcy increases as well.

How effective will the BoJ's new expansionary policies be?

The Bank of Japan has tried to drag the Japanese economy out of the low inflation environment. However, the monetary policies issued seem less effective and the markets have kinked reaction towards these monetary policies. Once the monetary policies are first announced, the markets have positive reactions and move towards the direction that the Bank of Japan wants; however, after a while, the market reactions are reserved and move towards the opposite way. Such phenomenon happens today as well.

Today the Bank of Japan gave two points addressing its monetary policies. Firstly, the Bank of Japan sets a cap for the 10 year government bond yields at zero per cent. This is another bond buying scheme that the Bank of Japan is buying any bonds offered at this price. Secondly, the Bank of Japan will continue its current asset buying programs until the inflation target is exceeded.

In many respects, the Bank of Japan has not come up any new monetary policies, as it just promises to continue or expand its current government bond buying program and asset buying program. These two kinds of programs are part of the Bank of Japan's QE program. In the past, the Bank of Japan has not successfully achieved the inflation target, this time it still won't. The problem is deeply inside the Japanese economy and a structural reform is required. The Bank of Japan is less likely to achieve the inflation goal on its own.

We need everything

I always think that trade and investment are two very different concepts in the financial market. In the past, I thought that the financial sector should focus more on investment. I had my reasons. Firstly, investment is mutually beneficial. Investors and investees both benefit from the investment that investees can get enough funds for their future growth and investors can share the profits the growth of the investees. Moreover, when more money is invested, the economy is more likely to expand faster; therefore, investment can generate faster economic growth. In addition, investment can efficiently relocate the cash in the economy. And the competition whiling making investments is usually healthy that it tests the ability of looking for profitable opportunities and making good investment decisions.

Before I disliked trading because it could be seen as a zero sum game. If it is a zero sum game, then the total gain in the market is always zero. Although maybe the market could expand due to frequent trading activities, the accumulated gain is equal to the accumulated loss. In addition, the competition in trading could be vicious and create market instability. However, trading has its most important function in the economy that it creates liquidity. Investment is a long term activity, but sometimes we could face unexpected liquidity issues that make us unable to continue our current investment program. When we have opportunities, we can exchange our investment opportunities for liquidity, then the liquidity issues could be solved.

Therefore, I still consist that investment could be the primary action in the financial markets, but I think trading will be seen as a tool to relocate the investment opportunities.

What can humans do when computers enter the competition?

Gut feeling leads to success in financial markets, according to research by Cambridge university. In addition, traders perform much better at heart beat detection tasks than university students. Such researches are based on statistical analysis. However, there is another research showing that the computing algorithms have better performances of trading in financial markets than humans on average. Therefore, it's worth talking about what we can do in order to increase our competitiveness compared with machines.

Let's talk about the advantages of our human beings. Firstly, people are the ones who design the computing algorithms in financial markets; therefore, the importance of the role of our human beings is undeniable. Secondly, computer hardware and software need to be upgraded frequently in order to compete with other participants with the latest technologies. This requires a repeated investment of computer technologies. Thirdly, although the performance of machines could be considered to be stable, during a period of fast technology innovations, the old technologies may be bullied by the latest technologies and suffer a significant loss in a very short period. Fourthly, computers make decisions on what has happened, but humans can make decisions based on gut feelings. Gut feelings may not always be right, but when they are right, they could bring very high profits.

How much do people accept negative returns?

Investment always has its risk; however, when the potential return is big enough, investors can ignore such risk and increase their investments. Investment is a great way to redistribute one's income and wealth across his lifetime; therefore, good investment helps people gain better and more secure future, could be seen as a way to reduce their future uncertainties and risk. Standing from this point, people should be much willing to make good investments, as it reduces people's future risk and uncertainties rather than increasing the risks. However, when the market uncertainty and risk increases over people's expectations and acceptable levels, their decisions of investments could be dropped off or paused. This is probably the reason that in some economies the private sector investment is declining. Often the factor of uncertainties dominates the factor of expected returns, as people are loss aversion. If the market is risky enough and the economy is also stuck in recession, people should be able to accept a negative but guaranteed return rate, as in this case they are no longer making investment decisions, they are actually insuring themselves against their future risks. However, when people are making their investment decisions, they could accept a negative return rate in real term, but fail to accept a negative rate in nominal term in general. This is because we have 10 year US government bonds and 10 year UK gilts, which are considered to be risk-free. This is the benchmark of the minimum accepted return rates in a 10 year period. Therefore, people may be able to accept a negative return rate within a shorter time period (shorter than 10 years); however, people expect their 10 year return rates are above or at least equal to the 10 year US government bond yields.

Long term versus short term

I wrote an article about how some of our experts predict the coming of a financial crisis, but we still cannot avoid the crisis. In the article, I say that people are impossible to precisely know the precise timing of any future event. However, when we are coming to face the real world problem, we have to know the precise timing of certain future events, as we have very tight time constraints.

Do we have any solution for such problem? In some occasion, we treat some immediate issues and assume the factors will stay the same. Because the difference is smaller when the time gap is narrower, then it is better to solve short term problems and accumulate them to form a long term solution. Such solution is very reasonable and easy to do. However, the solution may not be the real solution. When we split a long term issue into many short term issues, because when the time gap becomes narrower, the changes of important factors are too small to be taken into account, but the small changes accumulate over time, when it comes to the end of the time period, the changes of the important factors become significant to affect the result.

This is what happens in our markets and economies, we pay a lot more attention to the short term major changes, but much less attention to smaller changes over time until people notice the accumulated significant changes.

Nuclear power could be the best option for energy

Sustainable green energy should replace the fossil fuel energy, as it is environmentally friendly and we do not need to worry about what will be the alternative when the energy is running out. However, sometimes in my opinion, green energy still has a long path to go. There are three main types of green energy, solar energy, wind power and hydroelectric energy. The advantages of these three types of energy are so obvious that I do not think I need to explain them, as they are already our common sense, the disadvantages are also obvious.

The disadvantage that these three types of green energy share is they all require typical geographical requirements that they do not meet all countries' requirement for energy. In additional, the wind power and solar energy have a lot of room to improve their energy generation efficiency. Moreover, to generate the satisfied amount of energy, the power stations that use these two types of energy sometimes require to be located in some tourist areas, such as seacoast and desert. These disadvantages, such as strict geographical requirements and technological weakness, limit the scale and the use of these types of green energy.

While the use of the green energy is limited and we need to replace the fossil fuel, I think nuclear power could be the alternative to the green energy and the fossil fuels. Firstly, in some ways, it could be described as sustainable energy, as the nuclear fuel could be used to generate energy up to around a hundred year. Secondly, it is powerful enough to meet the demand for energy of the current society and has very limited requirement. In fact, almost all countries have the abilities to build nuclear power stations. The problem of nuclear power is how to dump the nuclear waste, which is something we still have some time to improve our technology to deal with.

To conclude, I expect in the future, nuclear power could be widely for home energy supply and the green energy may not be used as widely as nuclear power. In a longer term, I still expect the solar energy will be the main source of energy, as it does not necessarily require a power station and is more mobile.

How is a long term issue adjusted by short term factors?

We are already used to all kinds of market fluctuations; however, some fluctuations are very confusing that the price of a long term security should change much less violently. It is very easy to understand for all of us that what happens today has more impacts on something that is scheduled for tomorrow than on something is scheduled for next year.

The ordinary stock market could fluctuate very violently as though some people trade stocks for seeking long term returns, there are some opportunists who seek for short term returns or even next millisecond return. Such market fluctuation is sensible and very common. However, when we look at the government bond markets, the situation is much different. The maturity of a government bond is fixed, which means technically you cannot claim back your loans before the bond is mature. As people now can trade their government bonds with other investors, we can actually see that the returns and the prices of the government bonds change over time and sometimes fluctuate very violently. When it is a 10 year or even 20 year government bond, people may be more sensible to consider more about the trend rather than the short term fluctuation of the economic performance. Think about the government bond a consumer product, whatever the market changes, as long as the government does not default, what the government bond delivers never changes. If the utility does not change, the price should not change, unless THERE IS SOMETHING BETTER.

Yes, what really changes some long term issues is other choices, in economics terms, the opportunity costs. As long as we can trade our holdings with other people, there is nothing long termed, as we are no longer seeking for returns in the future, we are actually seeking for the best choices at this particular moment. We still want to have higher returns in the future, but to achieve higher returns, we adjust our choices more frequently when the market is more complete and free; therefore, maybe we have a long term goal, but we are making short term decisions overall.

The emerging market slowdown is not really a problem

Some people may be surprised after the strong Chinese August data were released on Tuesday. Some experts and economists believe the data have shown the stabilization and improvement of the Chinese economy and the worry about the Chinese economy's hard landing is mitigated by such data. In addition, the possibility of a further cut in rates by the Chinese central bank decreases as well. The Chinese economy is the largest economy in the emerging economies and is the model of other emerging economies. Maybe we cannot receive as good data as the Chinese ones from other emerging economies, the great Chinese economy could ease people's worry about the impact of the emerging market slowdown in the world economy.

However, I never worry about the emerging market slowdown. The slowdown of the emerging market expansion is not a cause but a result. It is the result of the slowdown of the whole world economy, as the emerging markets often play the role of the manufactures of the world. When there is a decrease in the demand, the supply will reduce to re-balance the market, this is the reason for the emerging market slowdown. When the world economy is in a boom, we do not need to worry about the emerging markets, even some emerging economies may not perform very well, the problems are very individual and less likely to affect the entire world economy.

I have repeated myself for many times that the one thing that I really worry about is the default rates around the world. Not only the default rates in the high yield bond markets, but also the possible defaults in the low yield bond markets as well as the government bond markets may have deadly effects on the financial markets and the entire world economy as a whole.

What if Trump becomes the next US president?

The media do not like the idea of Trump's being the next US president, as there is much criticism about Mr Trump's speak and behavior and they see him as the symbol of the angry white lower classes. Maybe some American people and many people from other countries do not like Mr Trump to be the next president, when Hillary Clinton staggered and left a 9.11 memorial ceremony due to her health issue, the chance of Mr Trump's being the next American president increases, as due to common sense, people would like a healthy president rather than a sick one. People may need to get themselves ready for the Trump's at least 4 year presidential period.

What do we know about Mr Trump's policies if he gets elected? Although he changes many of his comments and arguments, we should expect a more strict migration regulation and an increase in military spending. As Mr Trump is not as experienced as Hillary Clinton in foreign policy, his strategy of foreign policy remains unclear; however, he makes clear that he wants more jobs to be created domestically, which means he would encourage firms to set up manufactures in the US. In order to achieve it, there is a possibility of increase tariffs on import consumer goods. Mr Trump's domestic economic policy is more clear, as he wants a less regulated market.

By adding all his policies up, we can see the US businesses may benefit from the less regulated and low tax rate markets; however, due to the tariffs, the cost of living of the ordinary American people may increase, and as the current unemployment rate is already very low, it is very hard to see a further improvement in the US employment. Frankly speaking, I do not see Mr Trump's policies really benefit the angry white lower class.

To conclude, if Mr Trump gets elected, I expect that the most traditional industries in the US may benefit from his policies while the growth in the clean energy industries may slow down as he is likely to remove the energy restrictions and more companies may choose the traditional energy due to the cost issue. Moreover, I do not think the general economic growth in the US will increase over the current level.

The post-war economy

Some areas in the world have suffered from wars and their economies have been in deep trouble since the wars. Most of these areas are in oil-rich areas and it seems not very difficult for these countries to get rich again due to their rich natural resources; however, the facts are very different.

Why is it so difficult for these countries to recover their economies? The most obvious answer is that the political system is broken down after the wars, there is no regulator in the economy to reset up the market order. Maybe sometimes foreign forces may intervene, but such intervention is unwelcome domestically and often does not suit the local interests. Therefore, the market order is hard to be reset up after wars. In addition, the infrastructure is damaged in wars, the economies have to rebuild their infrastructure, but the incomes of the economies are too limited to satisfy such large expenditure. Without the necessary infrastructure, the economies cannot recover very fast by taking advantage of the rich natural resources. In addition, some countries have very complex domestic conflicts. When the people in the country cannot unite together, it is hard to restore a domestic order spontaneously.

Therefore, we can see that restoring a domestic political and economic order is important to restore the domestic economy. When we look into some post-war economy, we can find it seems it has all the institutions and markets required, just like some developed economies have. However, the problem is it does not have the order restored inside these institutions and markets and the communication in the system is confusing, unpredictable and often changes very fast. The lack of orders in the system could be concluded as the risk in the system is too high for any participation to satisfy their preferences.

Should the world markets be combined to be a single market?

In most of our time currently, the markets across the world have very similar response to the same information. For example, after the surprising outcome of the Brexit referendum, the markets around the world fell sharply. Such phenomenon is understandable, as in the globalized world, the markets around the world intersect with each other. If the markets are so interacting with each other around the world, maybe we could ask if the increasing interdependence is enough to combine these markets together to form a single global market.

I think such change could improve efficiency, but damage the nations' interests and reduce the employment rates in some countries. Having a single market means it is not necessary to set up another office in a different country to do a similar job about making activities in the market. The people who work in a certain field will be put together and doing their work together, which could improve the efficiency, compared with if they work separately across the world. When the efficiency and productivity is improved, there is no need to maintain the same amount of employees, so there will be a job cut in the industry. Moreover, we have to admit some countries are more capable to provide professional workers than other countries, so the countries which have more professional workers will take the jobs from the countries which have fewer professional workers. Although it always happens, when there is a single market, it could be more significant. In addition, if the industries in one country are not very active in the financial markets, when there is a single global market, the resources put into this country by the financial industries could drop sharply.

Therefore, if we are going to have a single global market, it makes sense to the globalized financial industry and could improve the efficiency and productivity in the industry; however, it could significantly increase the level of competition in the industry and the competition between the nations and could probably widen the wealth gaps within individuals as well as nations.

Does it matter if your boss is an algorithm?

There are some people who are worried about we may be ruled by computer algorithms in the near future. They complain about how machines start to rule our lives and work. Such life has already started. In the trading market, computer algorithms start to play the role of traders. In the market research area, firms collect the data and run algorithms to analyze the data and use the result for their future product investment. In the daily life, people who go online frequently are analyzed by the companies like Google, they have been delivered with the results that the Google search engine, which is an algorithm, thinks are best suit you. There are countless examples of how computer algorithms "rule" our lives. Because it happens everywhere in our lives, it seems a bit scaring; moreover, some people's benefits have been hurt by such an environment.

Some workers complain because of the apps invented like Uber, Deliveroo, Dididache, their incomes have fallen significantly. Moreover, once these apps become more popular, the workers who work via these apps will receive lower payments from working for these apps, as the number of workers increases and the competition increases, so the income will decrease. Moreover, some people hate the feeling of being ruled by algorithms. However, people may need to start to get used to such working under such environment. When we look at how our working environment changes over time, we can see that we had a period of only using machines as tools, then currently some of us work along with machines as partners, it is not surprising if one day the machines become the boss of some of us. Each stage has an improvement of productivity and faces criticisms. In the past, the Japanese first brought sewing machines into their country, some people feared the sound of the machines could damage their souls. Later, when people work along with machines, some people now still believe we are losing the craftsmanship and people's intelligence and ability are always better than the capability of the machines.

Having an algorithm as a boss has its unique benefit. It never makes a biased decision, if the designer of the algorithm is unbiased. So having an algorithm as your boss, you do not need to worry about racism, sexism or etc. In addition, the speed of making decisions is much faster. Maybe people are more flexible when making their decisions and could do better when facing some complex issues. However, computers can run algorithms to solve many simple issues, and that speed is impossible to be achieved by a human being.

I think that maybe you dislike having a robot boss, but in some industries, which work on repeated matters and has limited requirement of innovation and invention,  it is very likely for you to have a robot boss.

What can the inflation-linked gilts offer

The inflation linked gilts are not new since the UK government began issuing the inflation linked gilts in 1981. There is a big change in the inflation linked gilts this year after the Brexit referendum as the inflation-linked gilts have delivered a 28.5 per cent return according to Bank of America Merrill Lynch indices. Since the Brexit referendum, the securities that hedge against the risk of the UK economy falling into a recession become very popular, as we can see that not only the inflation linked gilts become very popular, but the prices of the regular gilts and gold increase.

What is the benefit of owning the inflation-linked gilts rather than the regular gilts? If you expect there will be an inflation in the future in general and the inflation may be slightly higher than the market expectation, then it is a great opportunity to own the inflation-linked gilts. It may have more risks than the regular risks. As it is linked to the inflation rate, when there is a deflation, the return of such gilts can be much lower than the return of the regular gilts. Moreover, in most cases, if there is an increase in the inflation rate, the economy is more likely to be in a boom. When experiencing an economic boom, there are more great investment opportunities other than the inflation-linked gilts, which offer higher returns than the inflation-linked gilts.

Usually people who like buying inflation-linked gilts are very risk averse and worried even when the economy is in a good shape and they want a certain return in the future in real terms. However, currently more people are attracted to this field, because of the today's special environment. People are uncertain about the UK economic future when Britain leaves the European Union and the central banks around the world are taking very aggressive monetary policies, which creates the best environment for buying inflation-linked gilts, as the inflation rate may increase in the future due to the aggressive monetary policies and the future economy is increasingly uncertain.

To conclude, the inflation linked gilts are a very good option currently due to the very special and rare economic situation, but in general it is not necessarily as good as the regular gilts.

Should the UK recession forecast be scrapped?

Morgan Stanley and Credit Suisse have scrapped their forecasts that the British economy will fall into a recession after the Brexit reference. However, in fact, they have not scrapped their forecasts completely, they just delay the coming of the possible UK recession. They seem to hold their belief that the UK economy may not survive outside the European Union.

However, I actually hold a different view and become more optimistic than I was when the result of the referendum first released. Some surprisingly decent economic data brightens many people's expectations about the future of the UK economy. Although the UK economy could be actually affected once the Article 50 is triggered, that will be a few years later. Time matters a lot here. The result of the referendum has surprised many people, under such situation, the market will definitely overreact to the referendum, just as the market did at the end of June. However, as we see that the market is moderating itself, though some people may choose to ignore the fact of Britain is leaving the European Union, as it does not happen immediately, some people believe that Britain and the European Union could negotiate well and deliver a new agreement which is the best for the mutual benefits.

Britain and the European Union definitely want to trade with each other, as from many data, they have very large shares in each other's markets. Moreover, the European Union itself is progressing some free trade deals with other countries, like Canada and Australia, which means after Britain leaves the European Union, it does not stop Britain from being a free trade partner of the European Union. As the time passes, the public and the politicians are much less emotional, so a revengary action is less likely to be taken. Based on the above reasons, I think Britain can make a nice trade agreement with the European Union.

To conclude, I am not saying the British economy is unlikely to fall into the recession, I am saying that leaving the European Union is not going to the cause which drags the British economy into a recession.

Is the Bank of Japan's monetary policy heading down a dead end

The Bank of Japan is insisting on its aggressive monetary policy and its governor, Haruhiko Kuroda, promised on Monday that the Bank would continue its aggressive monetary policy until the inflation target of 2.0% is achieved. The inflation rate of last month has not been released yet, but according to the forecast, the inflation rate is expected to be at -0.4%, which is equal to the inflation rate in July 2016. If the forecast is right, the inflation rate in Japan will stay in the negative zone for five straight months, showing the ineffectiveness of the central bank's policies.

Such low inflation rate has been a long problem in Japan, according to its economic problems and its cultural facts. The Prime Minister of Japan, Shinzo Abe, was elected because of his "Abeconomics", as he promised monetary easing, fiscal stimulus and structural reforms. However, so far, it has not shown much success yet. Moreover, Japan recorded its government debt reached 229.20 percent of its GDP in 2015, which was beyond the danger level that the government has to reduce its spending and lower its debt to GDP ratio. This could let the Japanese economy lose the stimulus from the fiscal policies. While the structural reform is complicated and takes much longer time to finish and make an impact on the economy, the only hope of the Japanese economy seems to depend on the monetary policy, this is why the Bank of Japan is so insisting on its aggressive monetary policy.

However, though many countries have been using aggressive monetary policies through the first half of 2016, the effectiveness of these policies seems poor. The reason is the increasing uncertainty in the markets and the current extremely low interest rate affecting the effectiveness of lowering base rates further. The problem facing the Bank of Japan as well as many other central banks, including the European Central Bank, is continuing the current monetary policy may not stimulate the economy, but stopping such policy could actually hit the markets. Therefore, they are forced to insist on their current aggressive monetary policies, maybe they are not achieving anything, but doing nothing could hurt more.

Would the emerging markets become the new center of the markets?

I read an article called "Global activity now led by the emerging economies" by Gavyn Davies (https://www.ft.com/content/30b50798-dce3-30de-a931-91a1b2d4e141). The author suggests that though technically speaking, the global activity is not led by the emerging economies, the importance of the emerging economies is increasing over time. However, in terms of market, the financial markets in the emerging economies are still partially isolated from the global market, which is formed by the financial markets of the developed economies.

Undeniably, there is a barrier between the financial markets of the emerging economies and the financial markets of the developed economies. The barrier is partially built by the conservative regulations. Because many emerging economies lack experience of regulating modern financial markets, some of them put restrictions on investors, including foreign investors, so the foreign investors are repelled away by these regulations which increase the foreign investors' costs, while some of the emerging economies have very open financial markets but lack necessary regulations on the markets, the chaos due to the lack of regulations repels investors away.

Therefore, when comparing the emerging markets and the developed markets, the emerging markets have not figured out the balance between openness and regulation. Being the center of the markets has to be available to be accessed from all over the world with orders. Moreover, when institutions are used to operating mainly in the developed markets, it has to give very attractive bonus profits to these institutions for switching their operation focuses to the emerging markets. Last time, the US replacing the UK as the center of the global financial market was definitely partially contributed by the two world wars. If any of the emerging markets wants to become the next center of the global market, it has to take much more effort and time to achieve this goal. I would say it could take at least a century to complete such change if no miracle happens.

What is the bad news?

151000 work positions were added in the US last month, missing the estimate. The number of jobs created in July is 271000, so the economists forecasted 180000 jobs could be added to the economy in August. The jobless rate remains at 4.9 percent for three months in a row. Missing the estimate could be a piece of bad news; however, I do not really view it as bad news. Yes, the estimate was missed; however, the news of missing the estimate should be expected, as the current unemployment rate is historically low already. It is not just my opinion, the US stock market index turns green today, as S&P 500 is up by 0.42%.

What is really bad news for the markets as well as the economy? The worst news has the lowest probability to happen. If something bad has 50% chance to happen, then roughly half of the people can see its coming and prepare for its coming, which means only around half of the people will actually lose. Such probability is acceptable. However, once the probability decreases, for example, the probability drops to 1%, maybe there could be 1% of the population wanting to get ready for its coming, fewer then 1% of the population would actually get themselves ready, due to the pressure from the mainstream (the state of 99% probability), then when the event with 1% actually happens, much fewer people are actually preparing for its coming and the consequence to the whole society could be very damaging.

In the past, we often see that some economists and othe experts saw the coming of the financial crisis before it actually came, but it seemed the majority of the financial sector did not see its coming, especially all the big investment banks had suffered huge losses in the last crisis. Did they really know nothing about the coming of the financial ciris? I certainly think at least some people in the industry did know the danger of what they were doing and this group of people might be larger than what we expect. Why did they speak out about the weakness in the system? The answer is simple, the risk was too high for them to speak out about the weakness. Imagine if they talked to their investment banks that the banks should short mortgage-backed securities and collateralized debt obligations, firstly it was not easy to stop the trading immediately, secondly the crisis could come later than their expectations, which could let the banks doubt about the credibility of their warning, thirdly if the crisis did not come, then it could cost their careers. However, when they did not warn their institutions, and the crisis hit the industry, they could blame each other, and some might have to leave their jobs and when the economy recovers they can come back to their previous positions. Therefore, the best strategy for them is not to warn the institutions about the danger with a very small probability.

Overall, the really bad news is often hidden inside the market and whispered by a small group of people but never has been spoken out to the public or even their employers.

Can London stay as one of the global trading centres

London has been one of the global trading centres for centuries and had been the top one on the list. However, since the rise of the US, Japan, China and some other economies, London's importance and dominance have been diminishing. Even worse, after the Brexit referendum, though Britain has not officially left the European Union yet, the companies and individuals are preparing themselves for Britain leaving the EU, as we can see the price fluctuations in the British markets., including the London real estate market. There are some more serious moves taking place in the British financial sector. London's position as the global foreign exchange trading centre has been hit by the fall in the UK's capital share in the business, while Tokyo, Singapore and Hong Kong have taken much of the London's loss and increased their combined share to 21 per cent from 15 per cent. More than foreign exchange trading, many investors would also expect the volumes in commodity trading and security trading will diminish after the Brexit, which we still need to wait for some official reports to prove the argument but I think is very likely to happen.

Once Britain leaves the European Union, in terms of the financial industry in Europe, some institutions may decide to stay in Britain, as Britain holds the majority of their assets and moving their assets across countries has very high costs. Some institutions have already spoken that they would move their European head offices to the countries like France and Germany, these institutions are multinational operations and have more activities in the rest of Europe than in the UK.

Despite these facts, I think London can still remain one of the global trading centre, as London has its own advantage in terms of being a global trading centre. Firstly, London has been the global trading centre for centuries, it has all the facilities a global trading centre needs and many young graduates have already been trained to be capable to work in the industry, which reduces the cost of training. Secondly, the language used in Britain, English, has been widely spoken. Thirdly, the culture of London is very open to foreigners. The British population did vote to leave the European Union, but the majority of the Londoners voted to stay in the European Union. Fourthly, we are still uncertain about the new trade deal between Britain and the European Union, we could be more optimistic. Fifthly, Britain has established some close relationship with the US, China and many other countries, including the Commonwealth countries. Such foreign policy could benefit the financial industry, as the cost of transaction could be lower than other areas.

To conclude, I expect the financial activities in London would decrease after Britain officially leaves the European Union, but London could still remain as one of the most important global trading centres at least for the rest of this century.