STOCK-BUYERS GO GLOBAL. Investors, i.e., gamblers, are looking beyond the booming U.S. stocks for bargains in Europe and the developing world, which they expect to rebound sharply as vaccines spread and COVID cases recede.
U.S. equities markets are trading at or near record highs. Other markets offer greater chances for profits without as much risk of a market correction is the word on The Street.
On 31 December, the S&P 500 index was trading at 22.68 times 2021’s projected earnings, well above the five-year average of 17.78, according to the data firm FactSet. The ratio for MSCI’s Europe Index was 17.65 times.
In contrast, the MSCI Emerging Markets Index was trading at 15.65 times earnings.
Also, U.S. markets are increasingly driven by tech stocks, which will weaken as the COVID War winds down; people will start going back to work, students will go back to school; people will go out to shop… thus making them less online and tech-dependent.
Technology shares made up half of the S&P index’s 18-percent growth spurt last year; the tech-centric NASDAQ shot up 45 percent in 2020.
Guessing Game
The number of fund managers buying more than their usual shares of companies in emerging markets is at the highest number since November 2010, according to a December Bank of America survey.
China, whose economy is the only one of the major nations whose GDP will have risen in 2020, is also luring investors to developing nations, where China has a growing market share in several sectors. As Gerald Celente had forecast, the 20th century was the American Century, the 21st will be China’s since the business of America is war and the business of China is business.
Indeed, while China invests in business, despite the miserable economic conditions in the United States, just three weeks ago, Congress passed its largest defense budget in history with $627.3 billion in base funding and $68.7 billion in wartime overseas contingency operations funding.
Investors are “realizing that not only will they gain more diversification through international exposure but it also allows them to have more… exposure” to stocks whose share prices will rise as consumer economies rebound around the world, Sinead Grant, equities chief at BNY Mellon Wealth Management, told the Wall Street Journal.
IMF PREDICTS A “DARK WINTER.” The global economy begins this year poised for growth, due in part to 2020’s stronger-than-expected performance in some countries, particularly the U.S. and Japan, Gita Gopinath, chief economist for the International Monetary Fund (IMF), said in a 6 January Yahoo interview.
The year’s stronger start, coupled with new stimulus spending, “should power recovery in the second half” of this year, she noted.
In the short term, however, the world faces a “dark winter” as new COVID strains continue to spread infection, she said, adding that “it’s important that countries not prematurely withdraw” stimulus funding, citing recent bailout spending in the U.S. and Japan as examples of crucial short-term economic defense.
Also, “central banks should take a cautious approach to withdrawing any kind of support,” she emphasized.
The U.S. Federal Reserve has pledged to continue its aggressive purchases of debt and keep interest rates near zero until the economic recovery makes “substantial further progress.” However, some Fed officials recently have floated the idea of easing back of some aid measures this year.
Gopinath disagrees. “Interest rates are at historic lows and expected to be low for quite some time, which gives fiscal authorities space to use their toolbox,” Gopinath said, pointing out that stimulus spending depends on low-interest rates.
“Based on the… 2020 numbers,” the IMF could upgrade its economic outlook for some regions, she said, but the recovery in some developing countries could be delayed if vaccines are not available and used at a brisk pace in those areas. Her upbeat outlook assumes vaccines will be widely available and widely used by mid-year, she acknowledged.
In October, the IMF forecast a global growth rate for 2021 of 5.2 percent. The fund will release an updated forecast on 26 January.
TRENDPOST: As we had noted at the onset of today’s economic overview, the “experts,” politicians, business executives, economists, and the media are all betting on a COVID Vaccine economic high for the future.
VACCINE DELAY THREATENS ECONOMY RECOVERY, WORLD BANK SAYS. The world’s economy faces “a slow and difficult recovery at best,” the World Bank said in a 5 January statement, warning that even a moderate delay in distributing the serums could slash this year’s global growth rate in half.
The statement echoes the IMF’s comment that the recovery is a race between vaccination campaigns and the continued spread of the COVID virus.
The bank is forecasting the world’s GDP will grow 4 percent this year, ending the year 4.4 percent smaller than at the end of 2019.
That includes a 3.3 percent growth rate in the developed world and 3.4 percent among emerging economies. China will remain the outlier, growing 7.9 percent in 2021, the bank expects.
The forecast assumes vaccine campaigns will be expedited across both the developed and developing world, achieving widespread immunity by July, the bank emphasized.
If the campaigns are hobbled by logistical glitches or peoples’ refusal to be vaccinated, ongoing COVID infections could lead politicians to continue restrictions on economic activity. In that case, the global economy’s 2021 growth could be as small as 1.6 percent, the bank said.
Even with a successful worldwide vaccination campaign, the pandemic and economic crisis will continue to brake global growth, doing lasting damage to health, education, and corporations’ financial well-being, said World Bank president David Malpass.
“If history is any guide, the global economy is heading for a decade of growth disappointments,” he said in a statement accompanying the bank’s forecast.
“Stimulus mechanisms are working to concentrate wealth at the top rather than adding wealth from the bottom up,” he noted. “People at the bottom are going down even as people at the top are going up.”
TRENDPOST: We agree with both Mr. Malpass’s assessment of the global economic future and the inequality of wealth distribution.
SERVICE SECTOR STILL STRUGGLING. While the global manufacturing sector returns to life at a relatively quick pace, the world’s service industries are struggling, IHS Markit reported.
In the U.S., the company’s Purchasing Managers Index (PMI) in services measured 54.8 this month, down from 58.4 in October.
Ratings above 50 indicate expansion; higher numbers indicate stronger growth.
“Increasing virus case numbers took an increasing toll on the U.S. economy in December with business activity… growing at much-reduced rates,” Chris Williamson, IHS’s chief business economist, told the Wall Street Journal. “The slowdown was especially steep in the service sector, where social distancing measures hit consumer-facing businesses.”
Europe’s service-sector PMI climbed from 41.7 in November to 46.4 in December, indicating less weakness, although the European Central Bank estimates the continent’s economy shrank by 2.2 percent in 2020’s final quarter.
Also in December, China’s Caixin service-sector PMI sank from November’s 57.8 mark to 56.3.
In India, purchasing managers had forecast the HSBC service-sector PMI for India would rise from November’s 53.7 to 54.0; instead, the index dropped to 52.3.
Australia was the service industry’s bright spot for the month, with its PMI rising from 55.3 to 57.0.
KEEP STIMULUS COMING, PROTOCOLS IN PLACE, OECD URGES. Governments and central banks must keep stimulus money flowing and social restrictions in place while COVID vaccines cultivate widespread immunity to the virus, Laurence Boone, chief economist for the Organization for Economic Cooperation and Development (OECD), said in a 9 January BBC interview.
“These [stimulus] measures do make sense because the crisis is temporary,” she contended. “We’re talking about temporary measures and a temporary increase in debt-to-GDP ratio.”
Once past the crisis, “we will have to take a step back, look at the evolution of public finances… not only since COVID-19 but also since the [Great Recession] and see whether governments are spending their money on the right priorities.”
The OECD has warned of worsening economic inequality around the globe.
As vaccine campaigns continue, mask-wearing, social distancing, and other anti-contagion protocols must remain in place, Boone stressed.
“We probably have another six to nine or 12 months ahead of us” when the measures need to be maintained, she thinks.
“I’m not saying it’s easy,” she said. “I’m saying… it worked in 2020.
The OECD has predicted the global GDP will return to pre-pandemic levels by 2022, a sunnier forecast than many other groups have made.
However, the recovery will be uneven, Boone said, with China leading the world with an 8-percent gain and the OECD’s 37 member countries averaging 3 percent.
WORLD BANK AGAIN WARNS OF “DEEP DEBT DISTRESS.” Many more countries, particularly those in the South, will come under “deep debt distress” this year, David Malpass, World Bank president, said in comments quoted by Dubai’s Gulf Today newspaper.
Zambia has defaulted on some of its debt, he noted, and African oil producer Chad will need to reduce its debt to avoid a financial crisis. Restructuring sovereign debt already is underway in Angola and Ecuador.
Many emerging nations were sinking under massive debt loads before the economic crisis struck.
Stretching out payment schedules, easing terms, cutting interest rates, or forgiving some debt outright will be crucial to a robust global economic recovery, Malpass said.
China, which owns about 65 percent of the outstanding debts among developing countries, in particular needs to address the pending debt crisis, he added.
Many nations have suspended debtor nations’ payments through June, which Malpass acknowledged as a key step, but said more must be done.
The World Bank already is spending $12 billion to help poor nations acquire and distribute COVID vaccines, he noted. The bank also is urging developed nations to release more of their vaccine supplies to poor countries.
EUROPEAN ECONOMY DOWN, STIMULUS CALLS UP. Retail sales contracted at 6.1 percent across the Eurozone in November, more than the 3 to 4 percent that was expected, due largely to tightened restrictions on a social movement.
The weak sales, coupled with falling prices, are sparking renewed calls among business leaders for government stimulus by European Union nations and the union’s central bank.
November marked the fifth consecutive month of retail’s weakness, falling 18 percent in France, where nonessential stores were ordered closed earlier than in other countries.
December’s inflation rate was -0.3 percent, with energy prices falling and food prices rising more slowly than in the month before.
Price drops were the sharpest in Germany at -0.7 percent; analysts expect that trend to reverse this month now that the government has cut value-added tax rates.
TREND FORECAST: Yes, there will be more European Central Bank stimulus. In turn, the more cheap money pumped into the system, the higher precious metals and cryptocurrency prices will rise.
CORPORATE DEBT LOAD THREATENS LONG-TERM SOLVENCY. Even if a company’s business rebounds as the economic crisis recedes, lingering debt may hamper its ability to turn a profit or even its survival, according to Howard Marks, founder of Oak Tree Capital, an investment management firm that specializes in buying distressed debt.
Driven by euphoria over COVID vaccines’ deployment, markets ran “far ahead of economic fundamentals,” he told the Financial Times, with markets “so bifurcated – high relative to historic valuations” with “bonds and credit offering… the lowest returns in history.”
The recent junk-bond rally and opening-day soaring prices for IPOs is emblematic of markets’ recklessness, Marks said.
Easy credit and markets’ enthusiasm drove corporations to lard on more than $2.2 trillion in new debt last year, according to MarketWatch, bringing the global total owed to at least $5.4 billion, by conservative estimates. Syndicated loan markets poured in an additional $3.5 trillion, the Times reported.
While companies hoarded cash and credit lines to survive the crisis, they also saw sales and revenue dwindle. That divergence has left even previously strong companies overleveraged, Marks said.
At least 515 companies are so precariously balanced between debt and revenue that they could easily topple into bankruptcy or require restructuring, S&P Global said in a recent analysis.
By September, 9 percent of companies with junk-rated bonds could fail, S&P warned.
TREND FORECAST: When the overvalued equity markets, trading a near record-level price earning ratios, crash – the S&P 500’s forward price-earnings ratio is currently just below 23, near its highest level dating back to 2000 – so, too, will the debt bubble explode, dragging nations deeper into the “Greatest Depression.”
ECONOMIC CRISIS SLASHES LIVING STANDARDS ACROSS SOUTHERN AFRICA. The global economic crisis cut per-capita incomes by 6.1 percent in sub-Saharan Africa in 2020 and will shave another 0.2 percent this year before stabilizing in 2022, according to the World Bank’s just-released Global Economic Prospects report.
The loss “is expected to set average living standards back by a decade or more in a quarter of sub-Saharan African economies, with even more severe setbacks in Nigeria and South Africa – home to one-quarter of the region’s population,” the report stated.
“This reversal is projected to push tens of millions more people in the region into extreme poverty cumulatively in 2020 and 2021,” it added.
The report sees South Africa’s economy growing 3.3 percent this year, down from the 4 percent it had predicted last fall, and slowing to 1.7 percent in 2022. Heavy national debt and endemic problems such as chronic power outages will hobble recovery, the report said.
South Africa has seen the most severe COVID outbreak in the region, prompting officials to impose a draconian shutdown that halted almost all economic activity.
TREND FORECAST: We note the declining economic conditions in South Africa to put into focus the current events prior to the COVID War that were ravaging that nation.
As we have been reporting, South Africa’s economy was in decline and massive demonstrations and riots were raging across the nation in 2019. People were taking to the streets in protest of government corruption, rising poverty, lack of basic living standards, crime, and violence.
However, those protests were instantly silenced when the COVID War broke out and the government banned demonstrations.
We forecast they will again heat up as economic conditions continue to deteriorate. As Gerald Celente says, “When people lose everything and have nothing left to lose, they lose it.” Economically, the masses have lost it.
TRENDPOST: It should be noted that South Africa, with a population of nearly 60 million people, has registered some 34,000 coronavirus deaths since last March, or 0.056 percent of the population.
Each year, nearly three times as many people, over 90,000 South Africans, die from diabetes according to International Diabetes Federation, yet there is no lockdown of the nation and little is being done by the government to reverse the trend. In addition, an estimated 28,000 South Africans die of tuberculosis.
€6 BILLION IN STOCK DEALS BREXIT BRITAIN. On 4 January, the first stock-trading day of the year, €6 billion worth of trade business left Britain and relocated to the European Union.
Trading in Europe-based stocks such as Deutsche Bank, Santander, and French oil giant Total SE happens freely across borders within the union. Now that the U.K. has Brexited the E.U., Brits can no longer trade those shares on their home exchanges.
The trades that were absent from British exchanges totaled about a sixth of trading volume on European stock markets for the day, the Financial Times reported.
The shift not only is costing the British government fees and taxes but also encourages U.K. firms to list on European exchanges to make trading in multiple countries easier, analysts pointed out.
“Bang and it’s gone – the City,” London’s equivalent of Wall Street, “has lost its European share business,” Alisdair Haynes, CEO of Aquis Exchange, a pan-European trading services firm, commented to the Times.
“Virtually all” euro-denominated trades that were taking place in Britain moved to the Paris bourse within hours, Haynes said.
CBOE Europe is a trading house that had offices in London and Amsterdam. After doing little business in 2020, the Amsterdam exchange is now hosting €3.3 billion in deals, the company reported. Turquoise, a London-based trading platform that offered investors access to markets across Europe, also has seen its trades shift to Amsterdam.
As much as 30 percent of E.U. stock trades had moved through Britain. However, the Brexit agreement between the E.U. and U.K. ignored financial services, British Prime Minister Boris Johnson has publicly admitted.
TREND FORECAST: Where is the U.K. economy going with Brexit? As for the trade implications, both with hard goods and financial, with more details still unclear, we are not prepared to make a forecast.
However, as for its general economy, considering the vast, stringent new lockdown orders that will shut down the nation until March, despite a temporary bounce-back after restrictions are lifted, the U.K. will sink into the “Greatest Depression” faster than most of its former EU partners.
DENMARK LENDERS OFFER ZERO-PERCENT MORTGAGES. Borrowers with Denmark’s mortgage offices of Scandinavian financial giant Nordea Bank now can get a 20-year home loan at a fixed interest rate of zero.
Totalkredit, a division of Nykredit Realkredit, Denmark’s largest mortgage lender, will also offer 20-year mortgages carrying no interest, as will Jyske Bank’s mortgage office, the two have announced. Danske Bank, the country’s biggest bank, has hinted it may do the same.
Denmark has led Europe’s way to rock-bottom interest rates, having pegged rates below zero in 2012 to maintain the krone currency’s stable relationship to the euro.
Now, with central banks pledging to leave rates near or below zero indefinitely, according to Bloomberg, Danish lenders are hoping to jump-start the housing market in the wake of the global economic crisis.
The mortgages will be snapped up, Lisa Bergmann, Nordea Kredit, chief housing economist, told Bloomberg, adding that the bonds underwriting the mortgages are likely to be priced near record highs.
TURKEY’S MARKETS SURGE ON INTEREST RATE HIKES. Investors poured $1.4 billion into Turkey’s stock markets and $2.5 billion into in-country bonds in November and December after the nation’s central bank raised interest rates above the pace of inflation at its two most recent policy meetings.
The value of Turkish stocks is up 70 percent from its 2020 low and gained more than 10 percent in December alone, the Wall Street Journal reported.
At its December meeting, the Central Bank of the Republic of Turkey raised a key interest rate from 15 percent to 17 percent, lifting it above 2020’s inflation rate of 14.6 percent. The change made lira-denominated investments profitable for the first time in more than a year.
Investors yanked about $13 billion out of Turkey’s markets in 2020 as the central bank pursued a disastrous policy of interest-rate cuts under pressure from president Recip Erdogan, who thought the cuts would kick-start the nation’s feeble economy.
To prop up the sagging lira, Turkey’s currency, the bank threw billions of dollars’ worth of the country’s foreign currency reserves into the markets to buy lira. Still, the lira slumped to record lows against the dollar late last year.
Now the lira is at its strongest since August 19, trading above 7.33 to the dollar on 6 January. The turnaround came at the direction of Naci Agbal, the central bank’s new governor.
TREND FORECAST: As we have been reporting, Turks have been growing increasingly desperate as the lockdown orders have taken a heavy toll on the nation, with 25 percent of the country saying they might not be able to meet their basic needs.
Beyond the domestic economic devastation caused by the draconian measures, travel restrictions and curfews have crimped the country’s important hospitality sector. Agbal also has pledged to curb inflation and rebuild Turkey’s foreign currency reserves.
Thus, we forecast continuing economic weakness. Yes, there will be, and there is uplifting equity news, but there will be more pressure by President Erdogan to lower interest rates as the economy continue to decline, thus putting renewed downward pressure on the lira.
Also, currencies other than the lira have made up more than half of the country’s bank deposits in recent weeks, the Journal reported, indicating Turks’ lack of faith that the changes will result in long-lasting benefits.
Turkey’s markets also have benefited from investors’ renewed interest in emerging markets, which we have noted in this Trends Journal. In search of higher returns, many are willing to take on higher risk on the assumption that the global distribution of COVID vaccines will revive developing nations’ staggering economies.
INDIA FORESEES 7.7-PERCENT ECONOMIC CONTRACTION IN FY 2021. India’s GDP will shrink 7.7 percent this fiscal year and end the period 3.9 percent below 2019’s disappointing number, the National Statistical Office has predicted.
Dismal as it is, the forecast is more optimistic than those of other agencies. The World Bank foresees India’s economy contracting 9.6 percent in 2021; the International Monetary Fund has predicted a 10.3-percent retreat.
Given that the economy withered by 15.7 percent in the fiscal year’s first half, a 7.7-percent loss in the new year could almost be seen as a robust recovery, the Financial Express newspaper commented.
Government revenues have fallen sharply, while expenses have remained level. If the deficit were to double, it would equal 8.2 percent of GDP, forcing drastic revisions in the budget for fiscal 2022, the newspaper noted.
India’s GDP contracted 23.9 percent in the first quarter of its current fiscal year and 22.6 percent from March through June. However, the shrinkage was kept to just 4 percent in the quarter ending with September, better than analysts had expected.
DEUTSCHE BANK SETTLES CIVIL AND CRIMINAL CASES FOR $125 MILLION. German financial giant Deutsche Bank has settled a bribery case brought by the U.S. justice department and Securities Exchange Commission (S.E.C.) for $125 million.
The bank allegedly paid about $7 million over seven years to politically connected intermediaries in various countries to connect the bank to government officials.
Deutsche Bank had listed the payments in its records as “referral fees” and described them as money paid to consultants to help the bank find new customers.
As part of the settlement, the bank signed a deferred prosecution agreement with the justice department, essentially a form of probation.
“We take responsibility for these actions,” the bank said in a statement announcing the settlement.
The bank could show no invoices for the payments, the services paid for were often vaguely described, many who were paid received money over their contracted amount, or were paid without having a contract for services at all, the justice department’s investigation found.
The agreement also settled charges against the bank that it had manipulated commodities markets by placing orders for goods, profiting in the derivatives market as prices for the goods rose. The bank then canceled the orders before the goods could be delivered.
The bank has a colorful history of criminality.
In July 2020, it paid a $150-million fine to the S.E.C. to discharge allegations that it failed to report suspicious transactions by alleged sex trafficker Jeffrey Epstein. In 2019, Deutsche Bank paid the same agency $16 million to settle an investigation that it had gained business in China and Russia through corrupt means.
TRENDPOST: We also note this article to again illustrate the high levels of criminality and corruption. And how the Bankster criminal class gets monetary slaps on the wrist for their high crimes and misdemeanors while the little people of Slavelandia are prosecuted to the full extent of the law.
No clearer example today than the brutal squads of COVID Cops breaking into people’s homes, punching out non-mask wearers, and arresting protestors for not abiding by the draconian lockdown orders… that only the top politicians, as we have documented, are permitted to breach.
