On Monday, the Chinese Lunar New Year that started on Feb. 10 under the sign of the Yin Black Water Snake was only just under way and we already had a major surprising transformational and historical event that occurred when Pope Benedict XVI announced he is going to resign “willingly” on Feb. 28.
By doing so, he will become only the sixth pope to resign. The last pope to resign was Pope Gregory XII in 1415.
It doesn’t matter if you’re a Roman Catholic or not, but the fact there is going to be a new pope of the worldwide Catholic Church is an event that will have an impact on the uncertain world we live in and where we are confronted with rising religious fanaticism.
Let’s look at some of the important historical transformational events that have occurred during “Snake” years: the stock market crash on Oct. 29, 1929, that triggered the Great Depression; the 9/11 attacks in 2001; the Japanese attack on Pearl Harbor on Dec. 7, 1941 that brought the United States in World War II; the Bolshevik revolution in Russia in 1917 that allowed Vladimir Lenin to seize power; and the Bank of Japan in 2001 announcing its monetary policy that would be known as quantitative easing (QE), which should have stimulated the Japanese economy but that hasn’t been successful until now. I could go on and on.
For what it’s worth, the current Year of the Black Water Snake is expected to be characterized by deep, dynamic, unexpected change and instability.
So, without becoming superstitious, I don’t think anyone should feel ridiculous when asking themselves what known and unknown uncertainties/risks could turn 2013 into one of these infamous years “Snake” years, which could upset markets and eventually change the world as we know it.
Talking about global growth and the so-called recovery, the Organization for Economic Co-operation and Development released its latest composite leading indicators, which are designed to anticipate turning points in economic activity relative to long-term trends and show growth patterns in the economic outlook of major economies. Interestingly, only the United States and the United Kingdom, to a lesser extent, show continued above-long-term-trend economic growth, while the first timid growth signs appear in Japan.
In the eurozone, all the core countries show stabilizing growth below long-term trend, with France showing further contraction. All the BRIC countries (Brazil, Russia, India and China) remain below their 100-long-term-growth trend mark, with no definitive reversals yet on their charts.
The big unknown for growth in the United States is if the legal mechanisms for automatic cuts in government spending across a wide range of agencies, or the sequestration, will come into force on March 1. If that happens, we should expect slower U.S. growth. As always, we’ll have to wait and see.
By the way, the Congressional Budget Office (CBO) last week said it expects slow growth to continue in 2013, with the unemployment rate expected to remain above 7.5 percent through next year. I would like to summarize it as follows: “No doubt the U.S. economy is doing better, but it is still not doing well.”
Coming for a moment to the subject of if we’re headed for currency wars in the near future, it doesn’t look like the two main foreign exchange players, which are the United States and the European Union, are preparing for such a deeply damaging situation. Already, on Thursday, European Central Bank (ECB) President Mario Draghi confirmed the ECB’s preference of not intervening in currency issues and said the euro’s actual performance is a reflection of “faith” in the single currency.
U.S. Treasury Under Secretary Lael Brainard was more explicit this week when she stated she supported Japan’s efforts to boost growth and defeat deflation. No, to the United States and the European Union, the recently provoked weakness of the Japanese yen is not subject for concern yet.
Of course, not everyone agrees with that. I don’t know if the upcoming G20 meeting in Russia will teach us something new on how much should be considered as too much when countries “manipulate” or actively manage the exchange rates of their currencies.
All that said, what still causes me the greatest concern in the short to median term are geopolitical risks, particularly the Iranian nuclear weapon development uncertainty and the North Korean test of a “miniaturized” lighter nuclear device, which could be small enough to fit on a long-range rocket and has greater explosive force than the 2006 and 2009 tests.
About Iran, long-term investors would do well by keeping in mind that last week, Iran's Supreme Leader Ayatollah Ali Khamenei rejected unequivocally the idea of direct bilateral nuclear talks between the United States and Iran.
In my opinion, we should try to remain realistic and keep in mind that real power in Iran will remain with the Supreme Leader, even after Iran elects its new president on June 14, who will be the successor of Mahmoud Ahmadinejad since he cannot stand for a third term.
Yes, the second half of this year could become dangerous. Please don’t misunderstand me, I’m not saying it will.
When I take all this and much more into consideration, reasons abound for this year to be one of the “Snake” years you’d better be prepared for. Of course, that’s anybody’s personal choice and I could be too prudent.
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