This comes
together with a massive and steep decline in global trade, mimicking the
declines in 2008.
This is
despite a multi decade high in Chinese consumer confidence, which should boost
domestic consumption. Unfortunately for China, domestic consumption is still a
much smaller part of the economy than for example in the U.S.
Meanwhile in Europe it`s all looking bleak as well, with Germany`s
manufacturing orders going down 8.4%. This has now surpassed the declines from
2012, when we were in the middle of the European banking crisis.
In the U.K.
it`s a whole different story, and on the surface you would think that their
economy is booming. You can see the massive outlier in U.K. factory output
compared to its European peers. But once you start to realize that this is all
due to stockpiling because of the Brexit uncertainty, one can imagine that this
fast rise will collapse just as fast, whether or not an actual Brexit will take
place.
London
house prices are going down at the fastest rate in more than a decade, likely
due to the fact that much of the London property is being used for speculation
by the Arabs and Chinese, who don`t use the property as their primary dwelling.
Debt to GDP
levels in Europe have increased in all countries since 2008, but you can see that
there are actually only two countries who managed to come very close to their
pre-recession levels. Germany is practically back at the same level, while the
Netherlands is declining rapidly since 2014.
What do
these two countries have in common? They are the two largest exporters in the
EU zone.
Germany`s exports account for 24.2% of total EU exports, while the
tiny Netherlands account for 11.2%. Why have the two largest export nations shown
the most positive developments in debt to GDP levels? Reason number 1 is the
low Euro. If Germany and the Netherlands would still have their own currencies,
it would be at much higher levels in comparison to, for example, the US Dollar.
But because the Euro is basically a collection of 19 differently performing economies,
the bottom performing economies pull down the value of the Euro and create a
massive advantage for the EU`s export nations. The opposite is true as well; if
the bottom performing economies in the EU would have their own currency, it
would be at lower levels to the US Dollar than the Euro currently is.
This is the
main reason why countries like Greece and Portugal are continuously
underperforming and need continuous bailouts. In my opinion, countries like
Germany and the Netherlands are more than happy to bail these countries out,
because on the bottom line there`s still an economic gain.
Now, here`s
the real issue with the EU, which is hardly spoken about: despite having a
united currency, the EU does not have united EU bonds. Each EU member pays
different interest rates on their bonds, and you guessed it; the bottom performing
economies pay the highest interest rates.
If there
would be European bonds, or Eurobonds, with an interest rate that is based on
the average performance of all EU members, just as the Euro is valued, there would
be a much better balance in the EU`s economic system, where the best performing
economies benefit from a low currency, but have to pay higher interest rates,
and the least performing economies benefit from lower interest rates, but have
to endure a higher currency. But guess who the biggest opponents are to Eurobonds?
You guessed it…
In my
opinion, this is the biggest kept secret about the EU, with the Netherlands and
Germany being the biggest beneficiary. They literally have their cake and eat
it too; an artificially low currency with low interest rates!
Meanwhile,
the U.S. is reaching the record of 120 months of economic expansion, that was
set in the mid 90`s. Back then, the economic expansion happened with much
higher GDP growth, but nonetheless it`s very impressive, and a great example of
what Quantitative Easing can do for a country. The biggest problem right now is
that consumers, businesses and even the government itself is becoming addicted
and dependent on this constant inflow of “cheap money”, and there doesn`t seem
to be a way out of this spiral.
“If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential”
- Ray Dalio -
The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in this publication is that of the publisher and is subject to change without notice. The information in this publication may become outdated and there is no obligation to update any such information.