Investors Looking For Alternatives Ahead Of Stock Crash
In an interview published in the French financial daily Les Echos newspaper, IMF Managing Director Christine Lagarde says the IMF is likely to revise its world GDP growth forecasts downward in October.
The present 3.3% growth forecast for Y 2015 and 3.8% for Y 2016 are no longer “realistic.” Nevertheless, she added that growth will remain above the 3% threshold.
Ms. Lagarde says the ongoing global recovery is slowing because the developing economies, once the main drivers for global growth, are losing steam.
Developed economies’ growth momentum continues, but is not strong enough to offset the slowdown seen in the emerging market economies.
The Chinese National Bureau for Statistics informed profits earned by Chinese industrial companies declined by 8.8% in August on a Y-Y basis, which was the sharpest fall in 4 years. For the 1st 8 months of Y 2015, industrial profits of enterprises decreased by 2.9%.
From a long-term investors standpoint, it remains important to keep an eye on what goes on in China. Many believe that the next global recession, if it happens, will begin in China.
Another troubling factor is the “over-indebtedness” situation where we see that “USD-denominated” debt servicing for many emerging economies is becoming simply unbearable.
Chinese President Xi Jinping said Friday during a news conference with President Barack Hussein Obama: “There is no basis for the RMB Yuan (CNY) to have a devaluation in the long run … At present, the exchange rate between Renminbi (CNY) and the dollar is moving toward stability … Going forward, China will … maintain the normal fluctuation and maintain the basic stability of the RMB at an adaptive and equilibrium level.”
The Financial Times (FT)writes that the IMF is moving closer to including China’s CNY in an elite basket of reserve currencies called Special Drawing Rights (SDR) (which is composed of 41.9% of USD’s, 37.4% of Euros, 11.3% of GBPs and 9.4% of Japanese Yen. The final call for the review for inclusion of the CNY in the SDR basket until September of Y 2016.
Long-term investors should not overlook the fact we’ve seen an important turnaround since June 2014 when an emerging trend of money moving back into the USD swayed the price of Crude Oil and started to erode emerging economies’ Forex reserves.
During the same frame we saw volatility in Forex markets coming back to marks not seen since Y 1998, recall the the Thai Baht crisis and Russian debt crisis.
This time it has been the crises in the Russian Ruble, and the Brazilian Real that during the last 12 months have had negative impacts on mainly Forex markets.
Problems in China, weakness in major emerging economies, lingering troubles in Europe and continued uncertainty about Fed rate strategy could combine to form “the Perfect Storm.”
Investors should start searching for shelter before it is too late.
I am expecting the price of Fine to Tier 1 vintage and classic sports cars (Ferrari, Porsche, Mercedes, Alfa Romeo, and Maserati) to spike in this scenario.
Stay tuned…
HeffX-LTN
Paul Ebeling
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