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Savvy Investment Decisions Will Be Extremely Difficult as Global Problems Multiply

Savvy Investment Decisions Will Be Extremely Difficult as Global Problems Multiply
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Wednesday, 06 January 2016 11:11 AM Current | Bio | Archive


North Korea has let the world know it successfully tested its first hydrogen bomb that was powerful enough to trigger a 5.1 magnitude earthquake.

South Korea’s National Intelligence Agency said that the test may not have been a full-fledged hydrogen device. The yield and the seismic wave from the quake triggered by the explosion were lower than the ones caused by the nuclear tests in 2013.

In a statement, the U.S. said it could not confirm North Korea’s claims but condemned any violation of U.N. resolutions.

Anyway, this isn’t good news especially as it comes only one month after North Korea test-fired a submarine-launched ballistic missile.

That said, the economic news out of China was once again not good. The privately measured Caixin China General Services PMI for December came in 1 point lower than for November and printed 50.2, which was its lowest reading in 17 months.

At the same time, the Caixin Composite Output Index came in at 49.4, which was 1.1 point below the November reading and put the index in contraction territory. Also the composite employment number fell for the seventh month in a row while both services providers and manufacturers cut their prices in December.

These weak PMI data were confirmed by the dismal Chinese oil demand number, which only rose by 1.5 percent on a year-over-year basis.

China apparently continues to slow down and while it will continue to grow, albeit at a slower pace than the official data try to tell us, it won’t be the growth engine as we have known it for many years and which probably won't come back for a very long time.

That said, and after Deutsche Bank’s economists just revised their forecast for U.S. GDP in Q4 of 2015 and Q1 of 2016 down to respectively 0.5 percent and 1.5 percent, it won’t be the U.S. either that will become the growth engine for the world, which doesn’t mean the Fed won’t continue raising rates at a faster pace than markets expect.

As far as the EU is concerned, we just got an interesting comment from the ECB's Chief Economist of the ECB and member of the Executive Board Peter Praet who told the Belgian (Flemish) "Knack" magazine that there is no "Plan B" for reaching 2 percent inflation target other than to keep easing monetary policy.

"If you print enough money, you will always get inflation. Always, but if oil and commodities prices tumble, it is more difficult to allow inflation to rise. If a whole series of such factors occur, you can't do anything other than somewhat postpone the date on which you seek to reach the higher rate of inflation,” he said. “The emergence of bubbles is a justified concern. But if the ECB were not pursuing its current policy, the financial concerns would be even more serious because the economy would be in poorer shape,” he said.

Investors can expect the ECB to continue its QE programs well into 2017 while growth will probably remain fragile.

The German BGA trade federation, which represents the German wholesale, foreign trade and service sectors, warned about the dangers the eurozone is facing and criticized member states like France for failing to reform their economies, saying this was opening the door to populists and leading to an “internal erosion of Europe.”

According to BGA, one of the biggest dangers remain the unwillingness and inability of the euro area to address the root causes of the eurozone debt crisis.

Remarkably, BGA President Anton Boerner singled France out by saying the country had neglected the much-needed structural reforms for years. This neglect has caused an overly indebted economy struggling to generate growth.

This is important because it points to a growing divide, not on political level, but on economical level, between the two major founding countries of the EU, which is, at least in my opinion, a bad omen for the future.

Interestingly, the BGA also lowered its expected German GDP growth rate to 1.25 percent for 2016, which is well below the government's forecast for an expansion of 1.8 percent. 

It also considers China as a non-negligible “risk factor” for the stability of the global economy, while in case Chine would experience a hard landing Germany could, which does not mean would slip into recession.

With China continuing to slide, eurozone growth remaining stuck in low-gear and the U.S. not growing as it should, for investors making the right investment decisions in 2016 will be extremely difficult where maintaining a good portion in cash might be your best bet.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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With China continuing sliding, the eurozone growth remaining stuck in low-gear and the U.S. not growing as it should, for investors making the right investment decisions in 2016 will be extremely difficult.
investors, stocks, china, eurozone
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2016-11-06
Wednesday, 06 January 2016 11:11 AM
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