“They hope for a global economy poised for many years of growth, increasing personal wealth and prosperity, and political stability.
“Sadly, hope is never a strategy.
“Realists, on the other hand, fear that unstable and troubled bond and stock markets won’t abate anytime soon, and that the unintended consequences of solving the 2008 financial crisis could ensure that the next one is even worse…
“…new draconian capital rules have encouraged banks to exit high-risk lending, transferring risk from banks to non-banks – including pension funds, insurance companies, hedge funds, and other investors, where the skills and expertise to manage complex risks don’t necessarily reside.
“Risk has not gone away – it’s just no longer sitting with the banks.
“Then we come to quantitative easing (QE). The key policy of central banks post-2008 was to pump-prime economies through zero interest rates. The unintended consequences of these monetary experimentation policies has been to trigger enormous pricing distortions that are only now beginning to make themselves clear.
“As central banks hoovered up bond markets, savvy investors simply arbitraged their activities.
“Rather than zero-rates causing companies to build new factories and infrastructure to drive activity and create jobs, most simply borrowed more from bond markets and spent it buying back their own stock – pushing up the value to owners, while rewarding executives with higher bonuses as stock prices soared.
“Now that rates are rising again, corporates find themselves over-levered and less credit-worthy.
“Finally, there’s the politics element.
“Alongside QE came austerity, as countries were forced to bail out bankers, rescue failing lenders, and cut social spending. An immediate result was unemployment and recession. The long-term effect has been a voter shift towards populism, based on the perception that QE made the rich richer while austerity made the poor poorer.
“It is no surprise voters that across the developed world have sought someone to blame and embraced populist politicians promising better conditions as conventional politics failed.
“…risks are escalating in Europe too, as Italy squares off against the European Central Bank, Germany faces a populist right-wing revolt causing it to pull back on further integration, while Brexit has become a matter of “being seen to win” rather than doing the right thing on both sides of the divorce.
“You can’t fault voters for wanting better and falling for the appeal of populism. But the stakes are high.
“Markets are about politics and sentiment. And that is what the realists under stand, watching with concern to see how financial difficulties and declining sentiment (exacerbated by a trifecta of rising interest rates, declining stock markets, and political upheaval) could magnify into a serious financial crisis.”
“The richest 1,000 families resident in Britain – bankers and financiers among them – have more than doubled their net worth during an era of austerity and stagnating living standards.
“Instead, the crisis would be paid for with the future of an entire generation, not least youngsters from working-class backgrounds.”
“Activity in the UK services sector, the dominant part of the economy, in November slumped to its lowest level since the wake of the 2016 EU referendum, with firms blaming Brexit uncertainty.”
“Britain will struggle to achieve even modest economic growth next year unless the government secures an orderly Brexit in March, the Confederation of British Industry said on Thursday.”
“Italy’s populist government has a new problem brewing as it faces the risk that it could soon be dealing with the country’s first recession in five years. The economy unexpectedly shrank in the three months through September and surveys suggest the weakness is persisting. Manufacturing contracted at the fastest pace in four years in November and services companies have seen export demand fall for five straight months.”
“China’s leadership has prioritized employment as the country prepares to enter a period of prolonged economic difficulty. On Dec. 5, the country’s top economic planner, the State Council, unveiled a slew of policies designed to support employment in a paper that includes a plan to refund 50 percent of unemployment insurance premiums — which currently account for 2 percent of total payroll — to companies that forgo layoffs or keep them to a minimum.”
Car sales contracting in Canada, Mexico, the US (although SUV sales rose there), the UK and EU, China and many emerging markets.
“A total of 1.28mn passenger vehicles were sold in Mexico from January-November, down 6.63% year-over-year, according to data from national statistics and geography institute Inegi in cooperation with local automotive industry association AMIA.”
“Global stocks fell on Wednesday, plagued by a flattening yield curve that sparked concerns about an economic slowdown in the United States and weakening expectations of a lasting US-China trade truce… US markets were closed to mark former President George H.W. Bush’s death, but the effect of Wall Street’s turmoil in the previous session, when New York-listed shares tumbled more than 3 percent, was felt in Asia and Europe.”
“Not only is overall global trade growth slowing, but in many areas it is actively shrinking. “In ocean freight, measured by the live throughput of ports, the unit volume declined slightly in November,” down 0.3% month-over-month, Kuehne + Nagel said in the release.
“On top of that, every region of the globe saw its foreign trade growth drop in November.”
“…the warning quotient has been rising in recent weeks. Should we be genuinely anxious, and begin battening down the hatches to prepare for a coming storm?
“It is hard to be sure, of course, but reasons to stay awake at night are multiplying.”