2015 was a very mixed year – however, in the plethora of news and events i think that global economy starts to top up and probably will enter a recession very soon. Consider the following:
- Commodities and oil are down in a big way. From metals to soybeans situation is harsh. That is very worrisome and probably signals that world economy is on its way down already no matter what the official statistics say. You can’t have a growth with commodities’ prices falling. These are the building blocks of all economies.
- BRICs is no bright spot – these are the biggest developing countries (China, Brazil, Russia and India) and that’s where you expect the growth to come. Nah. Brazil is on the verge of collapse – Real is plunging, companies are failing, state bonds are with junk status already and some social unrest starts to surface up. Russia is on the downfall also with economic sanctions in place and cheap oil that is a drag on state finances. China starts to crack – we see the massive levels of debts accumulated there in the years start to cause trouble and the stock market is mirror of that. (especially in summer 2015 and yesterday when stock market in China crashed with close to 7%). Only India hasn’t gone through a rout last year.
- Chances are high that US will follow. Last year SP500 was almost at 0%. But problems are starting to surface. SP500 is calculated not on an average basis but on a size distribution – that means that bigger companies have more representation in the index. Out of the biggest 15 in SP500, 4 went up big (Google – the second largest company went up 50%+, Microsoft, Amazon and Facebook) while only 2 went down in a bigger way – Exxon and Wal-Mart. The other 9 are kind of the same. So big companies might have skewed statistics to the upside and still SP500 went no where. Average P/E ratios are higher than historical values and the bull run spans longer than average. These are all red signals.
- Political situation is gloomy. With Russia in the war in Syria, situation there goes from bad to worse. Saudi-Iranian cold war is heating up. Europe faces tough situation handling the millions of emigrants from the middle east which puts a greater strain on the fragile economic growth.
- Officials are long ago known for bad economic predictions. Now they start to face downgrades AGAIN. IMF lowers its outlook for the global growth. I even doubt the 3.1% figure for 2015 but at least they confess for being wrong.
- Gold and silver eagles sales had a very solid year – it was even record for silver eagles with 47 million peaces sold. That means that average Joe is very worried about economic prospects (gold and silver are hedges against inflation and stagnation).
- Real estate prices’ increase in US west coast are far outweighs the increase in incomes. It was in 2007-2009 when that last happened.
- World debt levels are at all time highs – so the root cause for the last financial crisis has gone nowhere. No country/company/individual survived 286% of debt level without going bankrupt. It is not a matter of if but of when.
- Incomes stagnate and unemployment stays high. US reports unemployment going down but they don’t account for the people outside of the labor force. These people are almost 100 million so far and continue growing.
I am not a gloomy person by nature but when facts speak it must be true. I think that 2016-2017 will be a cornerstone for world economy with most of the developing countries feeling prolonged pain. The US stock market bull run will end and real estate will start to crack. Europe will face stagnation and will return to the printing press in a big way. Japan will print even more as things deteriorate there also no matter the state interventions. Australia will probably have a real estate bubble pop – real estate prices are at record highs while main exports (it is a resource export economy) prices’ go down.