There is an enormous fictitious sense of security created by headlines that advertise an ever expanding Dow Jones average. Media analysis providing explanation for the “unexpected ” improvements reveal that the markets are reacting to events. Events usually associated with deteriorating global economic events: China ‘s Central Bank lowering its base interest rate; Japan doubling down on Quantitative Easing; Euro Zone conflicts over fiscal and monetary policy; Or events that portend global political and religious conflicts that can destabilize regions or countries.
But what is the big picture? How and why are the events occurring and what is the economic and political back story that provides a glimpse into future outcomes and events? More importantly, what are the unintended consequences and the catalytic events that have the potential to create, a global financial system perfect storm?
Nouriel Roubini’s group, Roubini’s Edge, have crafted an exhaustive and well written 35 page document that provides the kind of perspective needed to shed some light on the answer to these questions.
Roubini’s group believes there are 5 major macroeconomic events that have the potential to create the perfect storm. These events are:
- A repeat of the euro zone crisis;
- A hard landing in China;
- The risk of a failure of Abenomics to reflate Japan;
- Mounting geopolitical risks;
- Global currency shock caused by the strong dollar;
You can read the report by following this link: Is the Global Financial System Heading For the Perfect Storm?
At the end of the day, the European Union is fractured by the debt problems of the PIGS, China is finally experiencing the inevitable results of an expanding economy driven by government spending on real estate development, Abenomics is failing because the country doesn’t have the political or moral will to institute needed economic reforms and multiple global geopolitical events are in play at once. As long as all of the above factors exist the dollar will be artificially supported and will therefore create trade inequities in oil and other commodities throughout the globe.
There is a major correction coming and any of these macroeconomic events can cause it. A perfect storm capable of disrupting all of the world economies is possible if any of these macroeconomic events combines with another or with some other catalytic event…say an Israel, Iran conflict war over nuclear capability. Be prepared. Don’t assume good news is good news. It is not.