You can defy economic gravity for only so long

Where is the global economy headed? Which equity markets will rise and fall? 

Will gold prices rebound, the dollar soar, euro tank, yuan be devalued?

From Shanghai to Wall Street, markets worldwide were hit hard during a summer of equity turbulence not felt in years. While some indexes have rebounded to their 2015 highs, others remain soft as once-hot emerging markets rapidly cool and warnings of tepid global growth are forecast by the financial hierarchy, such as the International Monetary Fund, World Bank and OECD.

Meanwhile, recessionary fears increase among business and industry executives:

CEOs wary of economic conditions worldwide: Survey

Chief executive officers are less confident about economic conditions in every major region across the globe, according to a quarterly survey of top business executives.

The erosion in confidence results from the belief among CEOs that the global economy has softened in the past six months and will continue to weaken six months from now.

In July, 37 percent of CEOs said that the economy had improved in the previous six months. In the just-completed October survey, it slipped to 31 percent. 

(YPO Global Pulse survey, CNBC, 3 November 2015)

Their fears are real. The facts are in the numbers. Oil, copper, iron ore, aluminum, nickel… will the trend that has sunk the commodity price index to 15-year lows sink lower – or move higher?

Without sustained global growth, our forecast is more of the same for 2016, but only worse.

How will all those resource-rich raw-material nations – Chile, Congo, Colombia, Norway, Niger, Nigeria, Algeria, Russia, Venezuela, South Africa, Saudi Arabia, etc., whose economies are balanced on how much they export and the market price of what they sell – prevail? 

The economies of the more developed nations among them, while recessionary pressures will persist, will plod along with limited socioeconomic pain and discomfort. However, among the poorer resource-rich nations deeply dependent on exports, social turmoil will dramatically escalate and migration trends will accelerate as unemployed masses seek work and political tranquility in some promised land.


Thus, we forecast that deep-in-debt emerging-market economies, wracked by record capital outflows, plunging currencies and record-high inflation, will sink deeper into economic despair in the months and year ahead.

And for rich, oil-rich Middle East nations, whose restless natives are quelled with economic prosperity under the rule of dictatorial monarchies, social unrest will build because low oil prices can no longer support the lifestyles they’ve been accustomed to. Should revenge attacks by Yemenis ensue against the Arab League states that launched an unprovoked war against Yemen in March, oil prices could spike and monarchies may face internal rebellion – depending on the attacks’ scope, targets and intensity.

What can turn the economic tide?

Will those nations’ economies – running on zero and negative interest-rate polices and massive central-bank monetary injections that inflated the world’s $200 trillion credit market, boosting equity markets to new highs and merger and acquisitions to record levels – also boost trade, manufacturing and consumer consumption?

Our forecast is no.

The collapse of commodity prices is strictly a supply-and-demand issue that portends the onset of a long deflationary trend cycle. An expanding majority of consumers around the world are earning less income and often moving deeper in debt. And, the ripple effect from China – the world’s second-largest economy, slowing down after a decades-long spending spree – has helped create a glut of product. That’s resulting in a disparity between what’s available to purchase in the marketplace and the financial ability and practical need to purchase and process raw materials and manufacture goods.


Since the Panic of ’08 started, years of central banks’ quantitative easing and zero and negative interest-rate policies that highly rewarded the financial sector have, by all quantifiable measures, failed to inflate the pocketbook of the man on the street or raise the standard of living.

Current median household income in the US is below 1999 levels. Once celebrated as the land of opportunity, now, according to the Social Security Administration, 38 percent of American workers made less than $20,000 a year; 51 percent made less than $30,000; 63 percent made less than $40,000; and 72 percent made less than $50,000. Thus, after paying rent, mortgage, health care, auto insurance, student loans and other debt, the once-upon-a-time “shop until you drop” culture is doing its part to keep the deflationary cycle in place.

Again, there’s too much product and not enough demand. While just a normal occurrence for millennials, the retail sector’s 50-percent-to-70-percent-off storewide sales throughout the year were never a part of baby boomer or Gen Y culture. Nor was the new trend of mid- to high-range department stores, such as Macy’s and Lord & Taylor, opening off-price outlet chains to provide cheaper products to cash-strapped consumers. 

Thus you have another deflationary, but never officially admitted, down sign of the times.  


What new central-bank policies will be initiated by what countries to boost economic growth beyond the once unimaginable multi-trillion-dollar quantitative-easing schemes and zero interest-rate policies?  

Will China continue to drop interest rates to new lows and further ease reserve-ratio requirements for banks to reinvigorate its sagging economy? Will lowering mortgage home-loan standards rekindle its stagnant housing market and fill its ghost towns with tenants?

Despite two rounds of “Abenomics,” Japan’s massive monetary-stimulus and increased government-spending scheme, that nation is recession-bound. Will its central bank print more cheap money to again boost its equity markets, but not the standard of living for the nation’s people?

The Eurozone unemployment is stuck over 10 percent and Germany, the zone’s economic powerhouse, is suffering double-digit declines in exports despite the weak euro. As such, the prospects for the European Central Bank to ramp up its 1-trillion-euro quantitative-easing program, and deploy a negative deposit-rate policy to keep cheap money flowing, have intensified. Yet again, what is good for equity markets and merger-and-acquisition activity has not benefited the general public.

At one time, when capitalistic principles were the bedrock of the free-market system, economic forecasts could be made with high accuracy. Indeed, I began to make my name as a trend forecaster by predicting the October 1987 stock market crash in January of that year.

Those days are gone. Since I forecast in the 1999 Autumn Trends Journal that the bubble would burst by 2000’s second quarter and took out the domain name “Panic of ’08” in November 2007 in anticipation of the real estate and “exotic” financial-instrument bust, the game has dramatically changed.

How much more proof is needed to admit the financial game is rigged? Remember this past May, when five of the world’s largest banks, including JPMorgan Chase and Citigroup, pleaded guilty to felony charges for rigging the $5.3 trillion-a-day foreign-exchange markets?

Read the 3 November 2015 headline of the Financial Times: “ECB officials met bankers before big policy moves.” See how central banksters met with private banksters, hedge fund leaders, asset managers and top financiers just days – and even hours – before the European Central Bank governing council announced major policy moves such as cutting interest rates and buying private-sector assets.

As for US central bank policy, while the odds for the first interest-rate hike since 2006 have increased, so too have negative-interest-rate trial balloons been launched by former Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank President William Dudley.

In any event, cheap money will continue to flow from the halls of Montezuma to the shores of Tripoli to keep the equity market healthy – at the cost of sound economic policies and sound currencies.    TJ  





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