For the past few days I have been writing about the recent collapse on a monumental basis of the world’s stock markets.
As I said to my business partner, the “straw that broke the camel’s back” was the ABSURD RIDICULOUS IPO valuation of Alibaba not to mention the ABSURD RIDICULOUS price paid by Facebook for WhatsApp. In fact I have written in our blog recently how on earth could Facebook be worth MORE than Coca Cola. It was the former IPO that started the latest free-fall and which has been exacerbated by a number of other CRUCIAL factors which put together has made me VERY VERY worried indeed about the future. Sure the US has shown us in recent weeks that their economy is growing and employment numbers rising. But hidden behind this is a growing concern that could ultimately DERAIL the US recovery and in so doing send us back to 2008 and a recession. Let’s delve a little deeper into what the other factors are (I will be brief):
(1) UK CPI/Inflation – yesterday’s data showed inflation in the UK had fallen to 1.2%. This basically derails my recent rhetoric that rates could rise in December/January….with a target of 2%, yesterday’s number all but puts an end to that (though history has taught us that it is still possible to hike rates in the face of low inflation). That means with an election due in May 2015, the BoE might indeed have to wait until AFTER the elections before raising rates. This spells DISASTER for GBPUSD (ignore vs EUR for now) and therefore I am expecting a deeper correction in GBPUSD over the coming months.
(2) GERMAN ZEW/OUTLOOK – yesterday further saw the publication of the German outlook/confidence indicator (ZEW). Last month reported +6.9%. Expectation for yesterday was +1.00%. Reported -3.9%. Germany is the powerhouse and workhorse of the EU. A slowdown in Germany is like taking the coffee out the cappuccino. Tastes terrible and not worth drinking. The ongoing slowdown in the rest of the EU led by the most powerful economy (Germany) followed by France & Italy is testament of the slowdown. The situation in the EU is nothing short of grim, exacerbated by recent Russian sanctions and weak demand for exports. Simply put the EU relies on Germany, France and Italy. A recession scampers any chance of a recovery.
(3) EBOLA – Coming to a City near you!! It was obviously not taken seriously enough, and with the movement of people (unlike the last outbreak), Ebola is now a global phenomenon and one which none of us can even try to understand.
(4) FED ENDS QE – The gradual ending of QE in the US (ending this month) isn’t new and we all knew it was coming…but it is coming at a time when it is NEEDED MOST. The global economies always want more QE given their seemingly endless appetite for cheap money. While there was QE in the US and UK (ended) – we are now awaiting the signals that the ECB is going to plug that hole. So far they have disappointed. Regardless of the consequences politically or otherwise, the EU states NEED it. They need to stop playing silly games and pump that QE hole.
(5) OIL – I went to fill up my scooter the other day and still paid 1.2590/L. As my daughter says (and she got this from Tom and Jerry) – WHAT THE HECK. With oil languishing at $80/barrel sure I was expecting to pay less but with all the other factors going on around us the oil companies need to be making money somewhere. As usual you and I are the victims. I am no expert on OPEC and what goes on behind the scenes but what I do know is the pumps are still pumping yet the “thirst” and need for oil is dropping on the back of a slowdown in global demand. Be under no illusion here, the drop in oil prices will have SIGNIFICANT effects.
(6) FIGHTING/CONFLICTS – Ongoing conflicts in Ukraine and the M.E is not helping and investors remain cautious and jittery. The increased conflict could very well see a resurgence of 9/11+7/7 terror attacks on the west which will simply EXACERBATE current turmoil.
I am sorry to be the bearer of bad news today, but one must face the music.
Have a good day and good luck