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Bear Market Looms for Investors Amid World of Risks

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Monday, 15 October 2018 09:11 AM Current | Bio | Archive

Investors are headed for extremely difficult times over the next couple of years amid all the risk out there. I am not absolutely sure it will happen, but we could move into a “structural” bear market.

I still think we won’t see a sudden deep collapse like at the start of 2008, but I think we will go down in stages that will give the opportunity for investors to adjust their portfolio.

However, that dynamic yields the incredible difficult challenge to reinvest at the right moment.

With the International Monetary and Financial Committee (IMFC), which is the is the highest policy making body of IMF, wrapping up its meetings in Bali, Indonesia on Saturday, its final communiqué states a serious warning for all investors: “The global expansion remains strong. Growth is projected to be steady in the near term and moderate thereafter. However, the recovery is increasingly uneven, and some of the previously identified risks have partially materialized. Overall, risks are increasingly skewed to the downside amid heightened trade tensions and ongoing geopolitical concerns, with tighter financial conditions particularly affecting many emerging market and developing countries. Policy uncertainty, historically high debt levels, rising financial vulnerabilities, and limited policy space could further undermine confidence and growth prospects.”

U.S. and Saudi Arabia Escalate Threats

Saudi Arabia threatened on Sunday to use its economic clout to retaliate against any punitive measures, hitting back after President Trump said he could take very powerful actions against Saudi Arabia over the disappearance of the Saudi government critic Jamal Khashoggi.

The very powerful actions do not apparently include cancelling arms sales because the economic value of arms sales is more powerful.

The Saudi Foreign Ministry said in a statement: “The kingdom emphasizes that it will respond to any measure against it with an even stronger measure. The kingdom’s economy has an influential and vital role in the global economy.”

UK officials have also begun drawing up a list of Saudi security and government officials who could potentially come under sanctions pending the outcome of investigations into the disappearance of dissident journalist Jamal Khashoggi, a source close to both Riyadh and London told The Independent.

The list being drawn up by the Foreign and Commonwealth Office could be used in case the UK decides to invoke the “Magnitsky amendment,” passed this year, which allows Britain to impose sanctions on foreign officials accused of human rights violations, or to apply restrictions on Saudi trade and travel in coordination with the European Union.

Saudi media have reported that the government will retaliate with stronger measures in the event of some kind of sanctions. In a furious opinion piece published last night, Turki Aldakhil, general manager of the Saudi-owned Al-Arabiya news channel, warned the US “will stab its own economy to death” if it tried to impose sanctions.

Of course, investors could do well keeping in mind that it may not be President Trump who has the power to decide. This may rest with the U.S. Congress, which adds of course an element of uncertainty for markets.

At first sight there are twomain options that could worry investors:

  1. If Saudi Arabia would sell foreign assets, or
  2. If Saudi Arabia sought to increase the oil price.

The former would have less of an impact. Saudi Arabia was selling foreign assets when the oil price was low, and this didn’t cause a too big disruption, but it did contribute to a weak dollar at the time.

A rise in the oil price would transfer wealth from oil consumers to oil producers. That would potentially increase the value of the dollar now and would hurt domestic demand in most of the developed economies as most of them are oil importers, but also in the United States that notwithstanding the ‘shale oil boom’ consumers remain exposed to the international oil price where movements in the crude oil price are set, at least for now but it hasn’t always been like that, by the “Brent’ crude oil price benchmark, which is currently up by about 1 percent at $81. 20 per barrel.

WTI is currently at about $81.85 7 per barrel or up by about 0.75 percent.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
In my opinion, investors are headed for extremely difficult times over the next couple of years where the risk is out there, which doesn’t mean it’s absolutely for sure it will happen, but that we could move into a “structural” bear market.
bear, market, investors, risk
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2018-11-15
Monday, 15 October 2018 09:11 AM
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