Peripherals: A Puzzling Predicament

MACRO OUTLOOK

It is undeniable that behind closed doors, world leaders are worried about the global slowdown and the inability of the developed countries, after 5 years of relentless stimulus, to mount more of a recovery. Unemployment has become a paramount problem globally.

Last month I covered the realities of the recent G20 meeting in St Petersburg, Russia in the “Taper Caper” and how it forced:

1-    The immediate de-escalation of the tensions in Syria,

2-    The too ‘hawkish’ Laurence Summers (it’s all relative) no longer being a candidate for US Federal Reserve Chairmanship,

3-    The deferral of “TAPER” and any near term potential slowing of US liquidity injections.

These actions abruptly reversed the economic spiral the Emerging Markets were in and bought the global economy more time, as once again the can was kicked down the road.

This road appears more and more to be a false, economic illusion as Global Economic forecasts are continuously reduced.

The problem is that Emerging Markets are now 50% of the Global Economy and most importantly approaching 70% of the growth. For Emerging Markets to suffer a problem is to stall any recovery hopes in the developed economies.

MACRO INDICATORS

Slowing real economic growth can be seen from retail sales, to the Baltic Dry Index, to country imports and exports.  Considering inflation is a major concern, the published Global Deflator of only 1.8% is puzzling, to say the least. Nevertheless, it still leaves growth perilously close to the 2% level considered to the threshold for a Global Recession.

MACRO MONETARY

The global economies appear to be on the path towards the implementation of effectively an uncharted and unproven global “ABE-Nomics’ policy being forced upon Japan. Whether it works, which I am highly skeptical of, may not be as important in the short term as the fact it is based on the unparalleled strategy of the debasement of the currency. The YEN is in startling freefall and fostering a global renewal of the Japanese Carry Trade to reignite credit creation.

Though in the Intermediate Term we see strength in the US dollar, expect this debasement across all developed economies’ currencies in real terms (measured against precious metals, black gold and hard assets).

GEO-ECONOMICS

The problems in the Emerging Markets are serious and will take hold in 2014. Though the Fragile Five (Brazil, India, Indonesia, South Africa and Turkey) have received most of the attention we need to pay particular attention to the CEE (Central & Eastern Europe) in the not too distant future. Cyprus was an early warning. Poland confiscating Private Pensions last month is another!

 Read the full research in this month's Global Macro Tipping Points at GordonTLong.com

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View last month’s GMTP video “The Taper Caper” 20 minutes and 24 slides

Gordon T Long                        

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