Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

mohsinqureshii

The Global Economic Restructuring: 2014 Global Macro Outlook

Recommended Posts

It’s been 5 years and roughly 3 months since the financial crisis, yet the three main engines of the global economy: the U.S., China, and the Eurozone, remain stuck in low gear. Like weary kids on a long road trip, investors have been itching to arrive to their final destination of sustainable and steady global growth. China is working towards reconstructing its economy towards one based more on domestic consumption, instead of exports and fixed asset investment, fueled by dizzying credit growth. Meanwhile, the U.S. is focused on improving its current account by way of increasing exports, while working through its credit-induced “hangover”. In Europe, complementing efforts to improve the current accounts of the periphery are massive fiscal adjustments. Taken together, government officials are aiming to reverse the global imbalances built up over the past decade. Market participants are again asking, this time confidently, if the lengthy trip is almost over; that China will undergo a soft landing, eventually providing the rest of the world with aggregate demand; that Europe, having finally stabilized, can begin its long awaited recovery after years of austerity and reform; and that the U.S. has healed enough to hold its own and expand its business abroad. 2014 will likely answer this question:

 

“Yes children, we’ve arrived.” “No kids, we’ve taken a wrong turn.”

 

May 22nd will be an important day for Europe. The parliamentary elections will pit the seemingly unstoppable force of increasing anti-euro sentiment, due to years of austerity and dreadful economic and social conditions, against the immoveable object of institutional liberalism, represented by the complex web of organizations that comprise the European Union and its currency zone. The result of the elections will significantly depend on whether the recent bout of stabilization can shift into first year, reenergizing a fatigued citizenry and political class with optimism that Europe has reached the end of its historically difficult voyage. Given Germany’s notable dependence on exports and the dreary repair of current accounts of many periphery nations, the global recovery must gain momentum in order for it to serve as the elixir of political will for continued economic and eventual political integration.

The Asian region contains a number of potential negative surprises. First, military tensions continue to increase between China and Japan, South Korea, the Philippines, and a host of other countries. China’s increasing economic and military potential is changing the status quo and gradually shifting the balance of power in the region. Establishment of an Air Defense Identification Zone (ADIZ) over the East China Sea overlaps with Japan’s own and is a sign that Xi Jinping is striving to establish regional hegemony. Rumors of a second ADIZ in the South China Sea would dangerously raise the stakes. This territory is home to almost one third of global crude oil trade flows and over half of liquid natural gas, according to the Energy Information Administration. Inherent distrust of U.S. and Japanese intentions means that China will continue to increase military expenditure, as Japan has, to counteract Nippon’s ally and its “Asian Pivot.” Realism is alive and well. John Mearsheimer’s article “The Rise of China Will Not Be Peaceful at All,” written in 2005, is evermore prescient.

 

Second, Abenomics, the term used for Shinzo Abe’s 3-pronged policy of monetary easing, a hefty dose of fiscal stimulus, and structural reform depends highly on increasing wages in time for April’s sales-tax hike. If the strategy fails to pull Japan out of its deflationary slump, the country’s “world-class” debt pile, aging population and resulting reduction in national savings, increasingly structural current account deficit (due to rising energy imports), and worrying politicalization of monetary policy may attract investor angst, especially if external conditions do not improve and provide a crutch for the island nation’s economy. Last but certainly not least, China’s ongoing economic remodeling from exports and fixed-asset investment, all the while taming a suspected credit and property bubble, calls for a resumption of global growth as well. The communist country’s 3rd Plenum of the 18th Central Committee has generated optimism that leaders have finally gotten serious about tackling the state’s unsustainable business model. However, reforms may lead to unintended consequences, the most pressing being increasing stress on the nation’s progressively fragile financial system.

 

Meanwhile, the U.S. sports a couple of budding secular bullish tailwinds in re-shoring and hydraulic fracturing or “fracking.” George Mitchell, considered by most to be the father of fracking and horizontal drilling, laid the foundation for a revitalized energy industry in America. The technology has been instrumental in producing economic conditions in North Dakota, which flaunts an unemployment rate of 2.6%, envied by the rest of the nation. The evolution of the industry will close to double the segment’s workforce according to energy consultants. Moreover, industries ranging from trucking, to rail construction, to restaurants and hotels will benefit, providing jobs for the foreseeable future. America will likely become the world’s largest natural gas producer and will compete for the zenith in oil production, currently owned by Russia. From a macroeconomic perspective, increasing energy independence will likely help in shrinking America’s chronic current account deficit and in boosting FDI, itself a symptom of a second principal bullish trend to keep an eye on this year: Re-shoring. Lower energy costs are making the United States an increasingly attractive option for foreign businesses in Europe to set up shop. Meanwhile, the renminbi has appreciated by roughly 25% in just 6 years. Even better for re-shoring, Chinese labor costs have more than quadrupled since 2001. This sino-trend will continue due to a shrinking workforce throughout this decade.

 

After a lackluster 1st half of the year, U.S. economic growth has accelerated; surging 4.1% on an annualized basis in Q3. Furthermore, the unemployment rate hit a 5-year low of 7.0%. The aforementioned bullish tailwinds are playing a role in America’s resurgent economic growth, in addition to rising home prices and improved consumer psyche.

 

However, not all the news is rosy. These dynamics will bring about a wave of uncertainty over financial markets with regards to Federal Reserve policy. Janet Yellen is scheduled to take over as chairwoman of the Fed come February 1st. She won’t be the only new face.

 

Potentially 75% of the FOMC voting committee may change. The addition of Charles Plosser and Richard Fisher as voting members, replacing Charles Evans and Eric Rosengren, means a stronger hawkish contingent for Dr. Yellen to tame. Furthermore, in exchange for a slight closure of the monetary spigot (tapering), the Fed provided investors with another gadget, “Forward Guidance.” This concept serves as an indication to investors, business, and consumers of how the Fed intends to conduct monetary policy in the future. By stating that rates would remain low “well past the time that the unemployment rate, now 7%, declines below 6.5%,” long-term rates would be expected to decrease and lower borrowing costs to help the recovery. However, the risk of reputational damage increases using this strategy.

 

What if the FOMC suddenly had to backtrack on a stated promise due to unexpected inflation? The tapering of QE and introduction of forward guidance is likely to ferment uncertainty over the coming months.

 

Since the 2008 financial crisis feeble global growth has brought about an increasingly vocal cohort forewarning of “secular stagnation,” a prolonged period of insufficient worldwide aggregate demand whereby improved economic conditions come at the expense of financial stability (ie overextended asset prices). Returning to our analogy, it’s been a very long and exhausting journey for the kids. On the bright side, like all situations, “this too shall come to pass.” Long-term reforms in China will eventually strengthen the foundations for a protracted period of global expansion. Re-shoring and the rise of fracking worldwide will provide for long-term growth as well. The question that 2014 will likely answer is whether officials took a wrong turn at some point throughout the trip. Most of the time investors figure this out much later, as was the case with the repeal of portions of Glass-Steagall during the Clinton years (1999) and years of suboptimal interest rate policy by Alan Greenspan. As I stated in my prior outlook roughly 1.5 years ago: “…If world leaders can successfully navigate the treacherous waters of global restructuring over the coming years, eventually today’s seemingly endless period of weak economic performance will lay the foundation for a powerful secular bull market that may last for decades. Until then, investing today will require flexibility, risk management, and a willingness to embrace the fact that buy-and-hold investing has taken a back seat for the time being.” Always fasten your seatbelt!

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Plandemic = Lies going in - lies coming out  (see covid posts herein starting circa Jan 2020 ... ) Not sayin’ I'm certain about this -  but the question is valid --- did Damar Hamlin really suffer from vaccine-induced myocarditis?  Vaccine-induced myocarditis must be considered in the differential diagnosis because the whole team is “100% vaccinated team” with experimental gene based vaccines  for COVID-19 - which have produced not a few similar conditions.  These serious reactions typically occur in older subjects but the young and  anyone at or near the tipping point of inflammation are vulnerable... and elite athletes are consistently at that tipping point - even more so deep into the season... Just saying - One of the symptoms of corrupted science is the conflation of ‘verifiable’ with actually ‘verified’.  Billions of people took vaccines - following the (FALSE) science that intentionally furnished them (FALSE)  scientific credibility - because they are verifiable.  But they were never verified.  They are still NOT verified !!!!  Brave new world where if your pharm inc. has the right connections  you can now profitably dispense just about any old Lagevrio with impunity way before it has been verified - as long as it’s ostensibly 'verifiable' Just sayin’... For alternaltive snicks and giggles see - https://www.naturalhealth365.com/covid-shot-makers-to-investigate-harm-caused-by-their-injections.html  (of course there’s no way they could ever manipulate their data... ) https://www.naturalhealth365.com/bombshell-report-reveals-massive-hypertension-signal-after-covid-shot.html https://www.naturalhealth365.com/mrna-covid-shots-are-result-of-u-s-military-program-run-by-darpa-evidence-reveals.html etcx ... and now in a related story , Africa, which has the lowest vaccinated %'s in the world... and also the lowest incidence and complications from covid in the world hm ??? - is in the crosshairs of the WEF this year ... = billions more for the pharmCartels... all under the guise of "equity"  (btw, "equity" is now a consistently applied centralization/globalist buzzword/tell... watch for it coming to a propaganda near you...just sayin)
    • $VKTX Viking Therapeutics stock breakout watch above 9.56 , see https://stockconsultant.com/?VKTX
    • $ACM AECOM stock flat top breakout watch , see https://stockconsultant.com/?ACM
    • $ATNM Actinium Pharmaceuticals stock breakout watch above 12.66 , see https://stockconsultant.com/?ATNM
    • $VKTX Viking Therapeutics stock bull flag breakout watch above 9.56 , see https://stockconsultant.com/?VKTX
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.