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Reassessing the global economy for 2015 and it does not look very good except for gold

 -- Published: Monday, 29 December 2014 | Print  | Disqus 

By Peter Cooper

Negatives outweigh the positives in assessing the outlook for the global economy in 2015 despite the best efforts of the Wall Street propaganda machine to convince us otherwise. The disconnect between US share prices at all-time highs and the economic outlook is the most obvious danger ahead in global financial markets.

Let us focus first on the US economy. Is the economy that slowed to no growth in Q1 now storming ahead? Or was the Q3 GDP spike just a statistical anomaly? Take out the two-thirds of that figure that was an Obamacare accounting change and discount inventory building on false optimism and youíre back to a cold winter season ahead with low or no growth. The US shale oil jobs are also going.

Global headwinds

Thatís the weakest US economic recovery in history that is facing the following headwinds in the global economy: stumbling Chinese growth and a slow motion housing crash, a collapsing yen and ruble, Greece on the brink again threatening a eurozone crisis, a liquidity squeeze in emerging markets and a commodity price crash across the board from iron ore and copper to crude oil.

The only other bright spot apart from the last US GDP figure is the UK which is in a classic pre-election boomlet, and will face the biggest spending cuts in history whoever wins the general election next May. Meanwhile, US housing remains deep in the doldrums going into the depths of winter and durable goods orders fell in November instead of rising by an expected three to four per cent.

Economic commentators have a lot of negative factors to choose from in assessing the New Year outlook. It is very hard to see any reason for optimism except to assume that the momentum in global stock markets will continue without the Fedís QE money printing program.

The Bank of Japan can be relied upon to continue printing money but thatís getting to the stage where the yen will be the next ruble. The big hope is that the European Central Bank will join the money printers. However, the Germanís know their hyperinflation history and will not let that happen.

Russian implosion

Whatís just happened to the ruble and its horrible impact on German car manufacturers is a reminder. Russia is Germanyís second largest car market and new vehicle sales are off 25 per cent.

Where can investors hide from the coming storm, or rather the sudden realization by financial markets that there is no recovery in prospect. Oil price falls usually portend a global recession and there is no reason to think it will be any different this time. True low oil prices will assist a recovery, but the recession comes first.

Normally we would say buy energy companies in this environment as a contrarian trade, but not with global equity valuations still so high. There just has to be a good old fashioned stock market crash scenario in all this. In a recession cash is always king, though you need to be careful which cash you hold.

Gold would be our favorite currency for 2015. The dollar has been the least ugly sister of the bunch in 2014. But the Fed badly needs to devalue the dollar and inflate to reduce a debt burden that will only grow as deflation impacts the US next year. Gold not the dollar will be the last man standing in this currency war.

What do Russians wish now that they had bought?

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 -- Published: Monday, 29 December 2014 | E-Mail  | Print  | Source:

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