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US Still Best Place to Invest but Have Escape Plan Ready

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 Silvia Ganora | Dreamstime.com

Wednesday, 06 March 2019 09:49 AM Current | Bio | Archive

The Organization for Economic Co-operation and Development or OECD has just published its “Interim Economic Outlook” wherein it states that the global economy is slowing and major risks persist, with growth weakening much more than expected in Europe.

Vulnerabilities stemming from China and the weakening European economy, combined with a slowdown in trade and global manufacturing, high policy uncertainty and risks in financial markets, could undermine strong and sustainable medium-term growth worldwide.

The OECD projects that the global economy will grow by 3.3 per cent in 2019 and 3.4 per cent in 2020.

The OECD expects a growth rate for the U.S. of 2.6 percent this year and +2.2 percent in 2020, for the Euro area 1 percent this year and +1.2 percent in 2020, for Japan +0.8 percent this year and +0.7 percent in 2020, for China +6.2 percent this year and +6.0 percent in 2020.

OECD Chief Economist Laurence Boone commented: “A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to financial markets.”

For investors all this is important and means that the United States remains, in my opinion and for now at least, one of the better places to have investments but that should have also what’s called close to “liquid” instruments, under all circumstances, so that an unexpected “shock” could have only a limited chance to cause real havoc.

In the meantime, the dollar index DXY remains close to a 3-week high that was 97.129 on February 13th.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis just announced that the goods and services deficit was $59.8 billion in December, up $9.5 billion from $50.3 billion in November, revised.

For 2018, the goods and services deficit increased $68.8 billion, or 12.5 percent, from 2017. Exports increased $148.9 billion or 6.3 percent. Imports increased $217.7 billion or 7.5 percent.

2018 was the year of the trade tariffs in the U.S. that haven’t worked that well in 2018 as shown, at first look, by the further increase in the deficit. Partly this is because the trade tariffs have generally proved to be easy to evade.

Does a trade deficit matter?

On the one hand, a trade deficit means that the United States’ consumer has a higher standard of living than otherwise might be the case. The United States “exports” Treasury bonds in exchange for things that are actually likely to raise living standards.

On the other hand, the rising trade deficit is a symptom of a rising fiscal budget deficit in the United States and that is something that is gradually becoming more concerning for investors over the longer term, which means over the coming decade.

In this context, the Treasury Department informed yesterday that the government ran a deficit of $310 billion from October through January. A year earlier, for the similar period, the deficit was $176 billion. The budget deficit has risen, on a 12-month basis ending in January, to $914 billion or 4.4 percent of GDP.

Keith Hall, director of the Congressional Budget Office (CBO) commented this week at a conference in Washington that that kind of deficit was hard to imagine that it was sustainable.

On the just released Monthly Treasury Statement on Receipts and Outlays of the U.S. Government we can read on page 9 under the Budget Receipts that are under the “Customs Receipts” for the Current Fiscal Year to Date we have $24.455 billion, up from $12.634 billion during the comparable period the year before.

In the latest “CBO Budget and Economic Outlook: 2019 to 2029 projections” we can read on page 2 under “Deficits” that the federal budget deficit is expected at about $900 billion this year and to exceed $1 trillion each year beginning in 2022.

Over the coming decade, deficits are expected to fluctuate between 4.1 percent and 4.7 percent of GDP that is well above the average from the past 50 years.

All this information should convince any long-term investor that a well-studied, analyzed and if possible well-planned “diversification” of any portfolio will be desirable over the coming years.  

Believe me, this is easier said than done.

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

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For investors all this is important and means that the United States remains, in my opinion and for now at least, one of the better places to have investments.
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Wednesday, 06 March 2019 09:49 AM
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