T
The Byre
- Original Poster
- #1
The tightening process followed by the world’s central banks in 2022 has been contributing to the global economic slowdown. This has caused a flurry of commentary by leading analysts and I have been listening to the predictions of all those who also predicted the 2007 CDO collapse and the dot-com bubble bursting. These are people like Luke Groman, Felix Zulauf, Rick Rule, Jim Rickards and a whole host of others (including my good self!) with a track record of getting their economic forecasts more or less right.
I once wrote that I can predict anything, absolutely anything - except the future. Nobody can predict the future and only a fool tries to do so. Let me therefore be the first fool to have a stab at 2023. The following is what they think is the most likely to happen - it does not mean that these things must happen, but that these events are the most likely to happen.
Enjoy!
China is suffering the most from this slowdown & it will take them until about 2028 to recover. Europe is in almost as bad shape and will experience long-term structural problems in energy, politics and the repercussions of the Ukraine war that will depress much of its economy for the next five years.
The UK is in a strange position with both Scottish independence and Irish reunification possible. Also the aftermath of Brexit is putting it in an even worse position than most of the EU.
UK house prices will fall in real terms, though much of that fall will be disguised by inflation. If Scotland is able to gain independence, that would prove a major long-term boost for the Scottish economy thanks to oil and renewable energy sources and inward investments following reentry into the EU. It would however damage the English economy for a number of reasons, one of which would be companies relocating to Scotland in order to gain easier access to the EU.
Two causes for concern for an independent Scotland would be differing migration policies to England leading to attempts by an English government to control an almost uncontrollable border and the creation of a Scottish currency instead of adopting the Euro. Much will depend on the strength of the Euro and fiscal policies of the ECB.
The US is in a better position than the EU and is still in a boost phase following the massive fiscal stimulus (QE) issued over the past two years. Companies that are in debt are suffering and many zombies will be weeded out, but the healthier companies in the services sectors are recovering.
So the immediate outlook is for the global economy to struggle throughout 2023. The US will experience a mild recession. Most other nations are likely to experience a more serious one.
US stocks will perform poorly over the next few months as 50% of their earnings come from outside the US.
The fiscal tightening into a weakening economy is likely to trigger what monetary economists like to call "a major credit event" as credit becomes more expensive. China is a very likely candidate for a crash or a major default as deflation from its collapsing real estate market is severe and the contagion risk to foreign banks is high. More than one domino could fall and is a situation the world has to watch very carefully. Now is not the time to be investing in China.
All central banks will be forced to loosen the money supply when that credit event occurs. This change of policy is being called a central bank pivot and has been a subject of discussion in the money markets ever since they began tightening the money supply and raising interest rates.
The markets will have to decline until such a pivot happens. Many analysts think that something will “break” by late Q1, forcing the pivot response. That policy pivot will unleash a recovery in financial asset prices through the rest of 2023 and well into 2024. Commodity stocks will do well for at least two years.
Most commodities analysts expect the drift towards exchanging commodities (and oil in particular) for physical gold to pick up speed. "Pricing oil in physical gold is inevitable. In 1870 an ounce of gold bought you 24 barrels of oil. Today it is 22 barrels. The reality is that oil is already priced in gold." said Luke Groman.
Financial assets will regain lost ground, starting with growth stocks. This will be followed by cyclical stocks such as restaurants and hotel chains and commodities (energy, metals and precious metals).
The coming recession will dampen inflation, but it is not dead by any means. CPI and commodity prices will decrease from here until the pivot. Following the pivot, the stimulus will boost prices and impact scarce resources such as commodities – especially now that global trade is becoming increasingly difficult as the world splits in two (WEST vs BRICs). Inflation could be back to double-digits in 2025 and/or 2026 throughout the West.
During this period, bond yields will escalate as buyers of bonds will have to demand higher returns to cover for inflation. Felix Zulauf predicts 10 year yields above 8%, triggering another economic downturn after 2025. This is particularly bad news for the UK government that is having to pay about £100bn p.a. on interest rates alone and has a choice of four options -
1. Reduce spending by at least 25%.
2. Inflate away the value of the debt.
3. Default.
4. A combination of 1 and 2 (the most likely outcome).
All analysts foresee the next decade being a “decade of the roller-coasters” as the world's economy and the markets go from bust, to boom and back to bust again.
The dominance of the West is coming to an end. We have a divided world and supply chains will never return to what they were. World trade will be less efficient and more inflationary. And the ones who will suffer most will be the poor and the middle classes.
Governments will seek to strengthen central controls and this (as we have already seen in China) leads pretty quickly to unrest and may even lead to civil war in some places. Attempts to impose a central bank digital currency (CBDC) will fail because neither the retail banks nor the general population want it and as a result, will circumvent it by using a CBDC to buy alternatives such as gold and silver or anything else that can be used for trade.
All analysts think that the US made a stupid blunder by weaponizing the dollar and the financial system in response to the Ukraine invasion. It shocked the rest of the world and accelerated the plans for de-dollarization by countries producing commodities. That means the end of the Petrodollar and the end of the US dollar as the single world reserve currency.
In the short term, the dollar should strengthen again in Q1 of 2023 as things deteriorate. But if there is a pivot in Q2, the dollar will start weakening and stocks could go into yet another bubble that may last until mid-2024.
I am now beginning to work on what happens after all that turbulence - most likely a new dawn for Western democracies and a golden future for the coming generations. We shall see!
I once wrote that I can predict anything, absolutely anything - except the future. Nobody can predict the future and only a fool tries to do so. Let me therefore be the first fool to have a stab at 2023. The following is what they think is the most likely to happen - it does not mean that these things must happen, but that these events are the most likely to happen.
Enjoy!
China is suffering the most from this slowdown & it will take them until about 2028 to recover. Europe is in almost as bad shape and will experience long-term structural problems in energy, politics and the repercussions of the Ukraine war that will depress much of its economy for the next five years.
The UK is in a strange position with both Scottish independence and Irish reunification possible. Also the aftermath of Brexit is putting it in an even worse position than most of the EU.
UK house prices will fall in real terms, though much of that fall will be disguised by inflation. If Scotland is able to gain independence, that would prove a major long-term boost for the Scottish economy thanks to oil and renewable energy sources and inward investments following reentry into the EU. It would however damage the English economy for a number of reasons, one of which would be companies relocating to Scotland in order to gain easier access to the EU.
Two causes for concern for an independent Scotland would be differing migration policies to England leading to attempts by an English government to control an almost uncontrollable border and the creation of a Scottish currency instead of adopting the Euro. Much will depend on the strength of the Euro and fiscal policies of the ECB.
The US is in a better position than the EU and is still in a boost phase following the massive fiscal stimulus (QE) issued over the past two years. Companies that are in debt are suffering and many zombies will be weeded out, but the healthier companies in the services sectors are recovering.
So the immediate outlook is for the global economy to struggle throughout 2023. The US will experience a mild recession. Most other nations are likely to experience a more serious one.
US stocks will perform poorly over the next few months as 50% of their earnings come from outside the US.
The fiscal tightening into a weakening economy is likely to trigger what monetary economists like to call "a major credit event" as credit becomes more expensive. China is a very likely candidate for a crash or a major default as deflation from its collapsing real estate market is severe and the contagion risk to foreign banks is high. More than one domino could fall and is a situation the world has to watch very carefully. Now is not the time to be investing in China.
All central banks will be forced to loosen the money supply when that credit event occurs. This change of policy is being called a central bank pivot and has been a subject of discussion in the money markets ever since they began tightening the money supply and raising interest rates.
The markets will have to decline until such a pivot happens. Many analysts think that something will “break” by late Q1, forcing the pivot response. That policy pivot will unleash a recovery in financial asset prices through the rest of 2023 and well into 2024. Commodity stocks will do well for at least two years.
Most commodities analysts expect the drift towards exchanging commodities (and oil in particular) for physical gold to pick up speed. "Pricing oil in physical gold is inevitable. In 1870 an ounce of gold bought you 24 barrels of oil. Today it is 22 barrels. The reality is that oil is already priced in gold." said Luke Groman.
Financial assets will regain lost ground, starting with growth stocks. This will be followed by cyclical stocks such as restaurants and hotel chains and commodities (energy, metals and precious metals).
The coming recession will dampen inflation, but it is not dead by any means. CPI and commodity prices will decrease from here until the pivot. Following the pivot, the stimulus will boost prices and impact scarce resources such as commodities – especially now that global trade is becoming increasingly difficult as the world splits in two (WEST vs BRICs). Inflation could be back to double-digits in 2025 and/or 2026 throughout the West.
During this period, bond yields will escalate as buyers of bonds will have to demand higher returns to cover for inflation. Felix Zulauf predicts 10 year yields above 8%, triggering another economic downturn after 2025. This is particularly bad news for the UK government that is having to pay about £100bn p.a. on interest rates alone and has a choice of four options -
1. Reduce spending by at least 25%.
2. Inflate away the value of the debt.
3. Default.
4. A combination of 1 and 2 (the most likely outcome).
All analysts foresee the next decade being a “decade of the roller-coasters” as the world's economy and the markets go from bust, to boom and back to bust again.
The dominance of the West is coming to an end. We have a divided world and supply chains will never return to what they were. World trade will be less efficient and more inflationary. And the ones who will suffer most will be the poor and the middle classes.
Governments will seek to strengthen central controls and this (as we have already seen in China) leads pretty quickly to unrest and may even lead to civil war in some places. Attempts to impose a central bank digital currency (CBDC) will fail because neither the retail banks nor the general population want it and as a result, will circumvent it by using a CBDC to buy alternatives such as gold and silver or anything else that can be used for trade.
All analysts think that the US made a stupid blunder by weaponizing the dollar and the financial system in response to the Ukraine invasion. It shocked the rest of the world and accelerated the plans for de-dollarization by countries producing commodities. That means the end of the Petrodollar and the end of the US dollar as the single world reserve currency.
In the short term, the dollar should strengthen again in Q1 of 2023 as things deteriorate. But if there is a pivot in Q2, the dollar will start weakening and stocks could go into yet another bubble that may last until mid-2024.
I am now beginning to work on what happens after all that turbulence - most likely a new dawn for Western democracies and a golden future for the coming generations. We shall see!
