SmartStops commentary: There are critics of his calls, but Roubini in July 2006 predicted a “catastrophic” global financial meltdown that central bankers would be unable to prevent. The collapse of Lehman Brothers Holdings Inc. in 2008 sparked turmoil that led to the worst financial crisis since the 1930s. Of course predicting the markets future is challenging to say the least, with so many factors at play. Its why investor’s methodology must evolve to have protection ready for themselves at all times. You can’t survive our markets any longer by deploying a buy and hold methodolgy.
‘Perfect Storm’ warning for stocks
A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.
There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.
“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”
Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.
Despite a series of tightening monetary measures in 2010, China’s economy grew by an astonishing 9.8 percent in the fourth quarter pushing it ahead of Japan as the world’s second largest economy, while fueling concerns that more needs to be done to fight inflation.
According to Aaron Back and Jason Dean at the Wall Street Journal, China’s economy grew at an annual pace of 10.3 percent in 2010, crushing its 9.2 percent growth in the prior year. Furthermore, China reported a 31 percent increase in exports and a 38 percent increase in imports as the Chinese economy demanded more raw materials, machinery and consumer goods from producers around the world. Read More…
As developing nations continue to implement loose monetary policies, keep interest rates low and boost money supply, a nation’s debt and currency debasement should me of much concern.
Most recently, a study indicated that the U.S. national debt has ballooned nearly 12 fold over the last 30 years. Additionally, over this same time span the ratio of debt to GDP has gone from nearly one-third to 85%. During this time of exploded debt, GDP has only expanded 5.3 times, indicating that debt is growing at twice as fast as the U.S. economy. Similar trends have been seen in Europe, in particularly Greece, Spain and Portugal.
Some concerns of this exponential growth in debt include hyperinflation, as a result of printing more currency, a decline in the value of a nation’s currency, better known as currency debasement, and increased costs of borrowing, which make it difficult to chip away at deficits. Read More…
In an attempt to ease concerns and fears that rising inflation could damper economic growth, China raised bank reserve requirements for the third time in the last five weeks, influencing the Global X Financials ETF (CHIX), the iShares FTSE/Xinhua China 25 Index Fund (FXI), the SPDR S&P China ETF (GXC) and the Guggenheim China All-Cap ETF (YAO).
The Chinese Central Bank raised the reserve requirement ratio by 50 basis points after earlier data showed a rise in property prices for a third straight month, an increase in both exports and imports, significant increases in M2 money supply and jumps in new lending by financial institutions despite government efforts to stem the flood of liquidity into the nation’s economy. Read More…
Japan witnessed its fourth consecutive quarter of economic growth enabling it to retain its position as the world’s second largest economy after beating GDP expectations impacting the iShares MSCI Japan Index (EWJ), the iShares MSCI Japan Small Cap Index Fund (SCP) and the Vanguard Pacific Stock ETF (VPL).
The Japanese economy expanded by 4.5 percent in the third quarter of the year, exceeding analyst expectations by 0.6 percent and eating away at the nation’s massive deflationary gap. Furthermore, this expansion has led to Japan’s Minister of Economic and Fiscal Policy to peg an estimated annual growth for the year at around 2.6 percent. Read More…
The United States and South Korea agreed to modify a free-trade agreement, which, upon execution, will be the largest value of trade volume in the world since the North American Free Trade Agreement (NAFTA) paving the path to opportunity for the iShares MSCI South Korea Index (EWY), the Consumer Discretionary Select Sector SPDR (XLY) and the iPath Dow Jones-UBS Livestock Subindex Total Return ETN (COW).
More specifically, the amendments to the trade agreement includes new steps to open up South Korea’s auto market to US producers by enabling 25,000 vehicles to enter South Korea based on US safety standards. Furthermore, the United States is allowed to keep a 2.5% tariff on Korean-built cars for five more years, which will eventually be cut, and a 25 percent tariff on trucks until the eight year and eliminate the duty in the tenth year of the pact. Read More…