Blog Details

European Economic News

Germany is headed for a recession as a direct result of the US-China trade war.

Germany's auto sales and other exports to China & the UK have fallen off in the face of a weaker Remnimbi and GBP. Germany will be tempted to boost government spending at home with money going to green bonds & infrastructure, but their hands are pretty much tied on boosting Chinese & overseas demand for their cars.  

The September estimate on German manufacturing data was reported.  It was the weakest in seven years..... ECB to the rescue.  

As a result, the European Central Bank (ECB) has started up its QE programmes again on low aggregate demand in the region. The ECB has promised to buy 20 billion euros a month, indefinitely, starting in November. But, it might not be enough.

CNBC: The trade war is weighing 'like a big, dark cloud' on the global economy, says Christine Lagarde (President of the European Central Bank)
https://www.cnbc.com/2019/09/23/lagarde-trade-is-the-biggest-hurdle-for-the-global-economy.html  

U.S. Economic News

The Federal Reserve in the USA have had to cut interest rates in the face of the US-China currency war to boost domestic demand, weaken the US dollar and make US exports cheaper. 

St. Louis Fed President James Bullard on Monday said the U.S. economy is at risk because the 75-year old era of free trade, which has helped domestic companies prosper globally, is ending.

The global economy is “going to have to transition to this new reality that trade won’t be as free as it was”.

So the U.S. economy must prepare for a future of higher import duties and non-tariff barriers than we have seen historically, Bullard said.

Check out this chart which is a composite of manufacturing and services and it doesn't look good:

This might hit the U.S. consumers directly because they own shares in many Fortune 500 companies which earn the bulk of their profits overseas, he said.

Growth in the Economic Cycle Research Institute's U.S. Leading Employment Index (USLEI) — designed to answer that question because it predicts cyclical peaks and troughs in jobs growth — has plummeted to its worst reading since the Great Recession. Looking forward, the implication is crystal clear: job growth is poised to slow further in the coming months.

Plus, US Home Price Growth Slows to New 7-Year Low

It doesn't look good in the States and if you wanna really see what's happening, read this article on the banks running out of cash.

China Economic News

China’s economic numbers in the last few months have disappointed expectations but the worst is not over — analysts are expecting third quarter data to come in even weaker than than before.

A quarterly survey by China Beige Book released Wednesday showed that growth slowed in the third quarter while debt levels soared.

“Nationally, revenue, profits, output, sales volumes, and job growth all slowed from a quarter ago, as did both domestic and export orders,” the report said, citing China Beige Book’s survey of more than 3,300 Chinese businesses.

My comments: It's all in Trump's hands. My guess is he will take the foot off the neck of China and start making deals in the run up to the U.S. election, so it appears as though the economy is booming, when in fact, all he has done is delay the economic growth and unecessarily stifled the world economy.

The Middle East

Oil jumped in price 10% in a day as [allegedly] the Iranians bombed a Saudi Arabian oil refinery. Some 5% of the world's global oil supplies were knocked out in the September 14 strikes. Saudi Arabia has said half of that production has been restored and has dipped into its own reserves to satisfy customers

The US and Saudi Arabia have repeatedly accused Iran of being behind the attacks, which were claimed by Yemen’s Houthi movement, a group aligned with Iran and fighting the Saudi-led alliance in Yemen’s civil war. 

Will the US & Saudis fight back? There is a longstanding joke told in the Middle East about Saudi Arabia’s reluctance to fight its own wars. “Saudi Arabia will fight until the last Pakistani”. Read more in this Guardian piece.

Latest here from Al Jazeera.

Can US equities continue to rise?

Yes. Why? Where else in the world are you going to put money? Yield on equities better than bonds and the US dollar is still a safe haven and the world's reserve currency. Plus, the Fed wants it higher. You don't bet against the Fed. However, for safety, our ETF strategies are hedged with treasuries and gold ETFs.

Right now our strategies hold a mix of semi-conductors (think mobile phones), utilities (defensive play), treasuries (defensive play) & gold (fiat money printing play).

Understanding Our ETF Strategies

We are beating our benchmarks with our mix of holding US equity ETFs, a gold ETF and US treasury ETFs. The strategies aren't designed to always beat a 100% equity investment such as an investment in the S&P500, but no retirement portfolio is designed to invest 100% in the S&P500 anyway.

Usually, younger investors invest around 70% - 80% in equities if they are adventurous investors with 20% - 30% in bonds. If they are cautious investors it might be more like 60/40.

For older investors who are approaching retirement, they may invest up to 80% in bonds with only 20% in equities to secure their income.

Our ETF strategies can dynamically change every month, so it keeps the risk down and the correct balance higher. Plus, we also use gold as a hedge against rampant credit expansion (money printing). This makes our strategies much less risky.

The strategies aim to have a mix of equities, bonds & gold which will change from month to month and the composition of the equity and bond mix can change from month to month too based on momentum.

Which means it can move from defensive to more aggressive strategies quickly and vice versa, whereas most institutional pension funds rebalace much less frequently, often only once per year. 

Bitcoin

Bitcoin. Whilst it hasn't proved itself as an asset class yet, adoption is increasing. The number of Bitcoin ATMs globally has increased 500% from 2016, but that is still only a little over 5,500 ATMs. 

However, it remains highly volatile, dropping from $10,000 to $9,000 is just two days following thin trading after the launch of Bakkt, a warehouse and exchange for institutions to trade Bitcoin futures and receive physical delivery. Whilst this is a technological achievement, at the moment, it is not attracting the mass institutional market that it thought it would.

Bitcoin (BTC) then had another sharp sell-off on Tuesday as BTC dropped $1,000 in value during a single trading session.

Over the course of 30 minutes, beginning at 16:00 UTC on Sept 24, prices dipped below $8,000 — its lowest point since June 12 of this year. In addition, $30 billion has been drawn out of the market over a 24-hour period as investors sought to close their positions amid a frenzied sell-off.

There was more bad news as the Bitwise ETF is unlikely to be approved after the Van Eck Bitcoin ETF withdrawal.

Bitcoin is heavily reliant on China where the majority of the mining and trading is done (even if that is outside of China now). The Bitcoin futures market and off-exchange (peer-to-peer) trading are liquidity sources for Chinese citizens to respond to potential devaluation in the yuan as well as capital flight restrictions. This is also why it is so popular in Venezuela, Turkey and other countries which have fragile economies and volatile currencies.