Helping you navigate the new normal
We don’t often use the word “impossible” in the newsletter. But in this case, it is clearly impossible for GDP to continue to grow in the major Western economies.
Last week, the Japanese yen fell through the US$ : ¥150 level for the first time since 1990. It has now fallen by nearly 50% against the US$ in the past two years. The currency is behaving as if Japan were a 3rd world country – whereas it is actually the 3rd largest economy in the world. Clearly, something is very wrong.
Bubbles are great fun while they last. But they are much less fun when they burst. For the past 20 years, central bank stimulus has created some of the largest bubbles ever seen. But now, led by developments in Japan and China, they are bursting
Taylor Swift’s concerts are creating massive short-term demand as people reconnect after lockdowns. But the chemical industry is warning that deflation could be round the corner, due to the over-capacity created by 20 years of stimulus
Food prices have stayed high due to the disruption caused by the war. They are unlikely to fall back quickly as the war continues and economic volatility intensifies.
The Presidential Cycle is now over. Instead, worries about the recession and the US debt ceiling talks are moving centre-stage. But Asian currency markets are sending a warning signal. A rising US dollar and US interest rates, and a falling yen and yuan, could soon raise the risks of a major Asian debt crisis.
Chemicals are telling us that all the world’s major economies are in a major downturn. And the downturn is starting to accelerate as companies cut back spending and fire people. Real estate, autos and other key areas are already suffering along with the banking system.
It seems highly likely that the Rebound rally is ending, and the market Downtrend is about to resume. Time spent on researching the paradigm shifts that will take us into the New Normal will likely prove very profitable for the future
“You can’t run the most reckless monetary and fiscal experiment in history without the bill eventually coming due. The first invoice arrived as inflation. The second has come as a financial panic, with economic damage that may not end with Silicon Valley Bank.”
Companies and investors need to invest time now on having a genuine debate about the risks ahead. The regulatory failures of the past few days highlight what can quickly go wrong, if one hasn’t war-gamed out potential risks. As the saying goes, “Failing to plan, equals planning to fail”.
The ‘digitalization of everything’ has transformed the global economy over the past 30 years. The rise of the internet is just one example. Now electrification is set to have a similar impact, starting with the world’s largest manufacturing industry. Fasten your seatbelts for the ride!
‘Business as usual’ has been a great strategy for the past 40 years. But nothing lasts forever. It has now – like the central banks’ stimulus policies – hit the inevitable brick wall.
Nobody knows how markets will develop. But past performance is the best guide that we have. This is why our Sentiment Index is my Chart of the year for 2022.
As the head of Germany’s Employers’ Associations warned last month: “We are facing the biggest crisis the post-war Federal Republic has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years”.
We are facing a perfect storm of global food, energy and financial crises set off by the war in Ukraine. Analysts need to stop focusing on monetary policy and the inversion of the yield curve. They need to look out of the window and start dealing with the geopolitical reality of Putinflation.
The history of the 1929 and 2000 downturns suggests the real pain is yet to come. Housing markets look terribly over-valued around the world, as I noted last month. And US consumer sentiment is at all-time lows. So most company earnings seem set to fall, with more than 60% of US CEOs now expecting to see a recession.
It is time for the central banks to give up their outdated economic models, and focus instead on the science of demographics. Their efforts to create economic growth by ‘printing babies’ have simply created a debt bubble. This will likely now burst as Evergrande goes bankrupt.
The new business models, based on using locally-produced recycled plastic feedstocks, are a ‘once=-in-a-lifetime’ opportunity to create growth for decades to come.
The transformation period is a wonderful opportunity to reset the clock and start a new race.
The Federal Reserve can’t control the fallout from the bursting of China’s ‘subprime on steroids’ real estate bubble
Much of the way the world currently works depends on uninterrupted and elevated Chinese growth.
Governments have failed to properly protect their populations from the pandemic. Some have actively encouraged it, the rest have simply been incompetent. Today, their failure to vaccinate the world means poorer countries are now acting as a petri-dish – enabling …
