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Tags: markets | investors | bubble | stocks

Savvy Investors Must Plan to Survive Bubble Market's Pop

Savvy Investors Must Plan to Survive Bubble Market's Pop
(Dollar Photo Club)

By    |   Friday, 15 July 2016 09:49 AM EDT

The French government has qualified the attack in Nice, France, as a terrorist act and has extended the state of emergency for further 3 months and has also announced that soldiers will be deployed.

The attack prompted the Republican candidate Trump to delay his announcement of his choice of Vice President, which will probably be Indiana Governor Mike Pence.

The personal, social and political consequences of the attack are likely to dominate headlines in both financial markets and in the real world.

China released economic data showing that economy performed marginally better than expected across a range of indicators.

Within the details, the consumers continue to increase their relative role in the economy.

Retail sales were the most positive surprise in the data releases and are growing at over 10 percent year-on-year.

Although retail sales are only one part of consumer spending and not necessarily the most relevant part, growth in retail sales of over 10 percent does suggest a rising consumer share of GDP.

On a global scale of course, the Chinese consumer pales in comparison to the U.S. consumer.

American retail sales are also due today along with inflation numbers.

The U.S. consumer sector is expected to hold up, especially when looked at it excluding gasoline sales.

The growing U.S. inflation threat is likely to be highlighted in the consumer price inflation (CPI) data, not in the headline number, which remains subdued under the pressure of oil prices, but in the details.

Most inflation numbers other than the headline are at or above their 20-year averages and the core measures suggest building inflation pressure that the Fed will have to address if it wishes to avoid falling further behind the curve.

Coming back for a moment at yesterday’s surprising Bank of England decision of not reducing rates now, but probably in August, for investors it is important to take notice the Bank of England is already easing policy.

Maybe it’s helpful to recall that Central Bank policy is not just about interest rates nowadays, but also about quantitative policy and regulatory policy.

It is regulatory policy that has already been eased in order to achieve some degree of insurance against financial system problems.

With most economic experts agreeing on the likelihood of a negative economic shock in the UK over the next couple of years, the latest UK Q3 growth "nowcast," which uses statistical modeling for estimating future growth rates, already shows a substantial drop to 0.28 percent growth during Q3,  which raises the question what policy response could be best now.

Interest rates reductions would seem to be the most effective policy response to the current situation. This is not because interest cuts will stimulate credit growth because of the very simple reason that banks are unlikely to rush in for providing credit in a long period of uncertainty that’s ahead of us.

However, interest rate cuts also transfer income from savers to borrowers, and that’s something that is more useful, particularly as this transfer tends to be inter-generational.

Interest rate cuts reduce the income of all the people and raise the income of younger people, given the patterns of debt.

As economic trends are likely to work against the younger generation in the wake of the UK Referendum result, rate cuts could be seen as mitigation.

Given the concerns about property funds withdrawals in the UK, it’s probably worth observing that the housing market sentiment indicators from the Royal Institute of Chartered Surveyors saw a slump last month to levels not seen since 2008.

However, supply was also reported to be very weak, which is a common reaction in the UK that may help to understand that liquidity is more likely to bear the brunt than is the price.

Finally, IMF Chief Chrisyine Lagarde just warned that the IMF is to revise down global growth, once again, in its World Economic Outlook that is due out next week.

For long-term investors that raises the daunting question, “Where is growth finally going to come from?”

No doubt, markets are not reflecting what’s going on in the real world and common sense tells us, that can’t go on forever, but it can last for very long times … Be sure, you don’t caught by surprise when the ongoing abnormal situation will finally pop.

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.

© 2023 Newsmax Finance. All rights reserved.


HansParisis
No doubt, markets are not reflecting what’s going on in the real world and common sense tells us, that can’t go on forever, but it can last for very long times … Be sure, you don’t caught by surprise when the ongoing abnormal situation will finally pop.
markets, investors, bubble, stocks
746
2016-49-15
Friday, 15 July 2016 09:49 AM
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