I was browsing in an airport Bose shop, investigating “noise cancelling” headphones wondering about the technology. The process of active noise reduction, I learned, uses an external microphone to pick up outside noise and develops a second inverted copy of the noise, ultimately canceling both sounds out – similar to the way that -10 and +10 cancel one another out.
Noise cancellation headphones could be the antidote for all of the chatter coming out of China. We do not detect much impact on the U.S. economy and see many of the immediate effects cancelling each other out as noted below:
- Chinese bubble bursts causing economic instability, but this has put a previously aggressive Chinese government back on their heels
- The world begins to see that much of the Chinese official “economic” data is fiction and much of the economic activity is government controlled, but this strengthens the value of more transparent economies in North America and Europe
- Flight to safety from foreign investors increases the dollar exchange rate but also keeps U.S. interest rates extraordinarily low
- Oil and commodity producers reel in the decline in prices, but the U.S. consumers, service providers, and manufacturers with oil based COGS, benefit significantly
The most substantive, longer term consequences we believe of this current volatility will be:
- Provides everyone with a healthy dose of caution and tempers the exuberance that has entered the M&A market; we believe the number of deals will not decline, but that prices will stabilize
- Delay in the Fed increasing interest rates to December, 2015
- The US consumer will finally believe that low oil prices are here for some extended period of time and begin to spend rather than save or pay down debt with the savings
- The trajectory of the fifteen plus year China miracle has changed – keep your eye on developments there – focus on what they don’t do and say as much as their actions
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