Strange are the ways of the world. The financial world is
experiencing weird inconceivable situations which are akin to loss of gravity
and matter floating over the surface of the earth. Truly dark holes of
space…anti matter…anti gravity…its fi-fi
like sci-fi or cli-fi…..financial fiction is the new norm…
1.
Global economy facing secular stagnation with a
glut of most commodities like oil, iron ore,
cotton, apart from the classical factors of production like capital, debt and
labour which resulting in low economic growth rates, low inflation and low
interest rates and yield scenarios. Policy makers in the developed economies,
namely, US, Europe and Japan have been struggling to revive the moribund
economies and stimulate effective demand.
2.
Several countries being sucked into the whirlpool
with high debt/GDP ratios, fiscal deficits, default in debt payments. Total
debt comprising government, corporate and consumer debt in US risen to $ 25 bn
from $ 17 bn in 2008, ie to 181% of GDP from 167%. Corresponding figures in Europe
are 204% from 180% and China 241% from 134%.
3.
Corporate sector too reeling under high
debt-equity ratios. More so with currency fluctuations and sovereign debt
markets in negative zone, many are further leveraged. Corporate sector
resorting to dubious quarterly accounting shenanigans in order to meet the
expectations of the ever greedy investors.
4.
Debt markets are awash with several European
economies issuing debt at negative yields or real rates of interest.
5.
Gradual bankruptcies among increasing local
government and municipal bodies.
6.
Global banks paying billions of dollars in penalties
to regulators and in pay backs to customers till today.
7.
Credit raters also paying hefty penalties for deliberately
mis-rating bonds.
8.
Short term objectives of performing well at
stock markets driving corporate quarterly earnings and leading to questionable
accounting practices.
9.
Derivatives balloon becoming bigger by the day totaling
$ 700 bn, which is 10 times the cumulative GDP of the world around $ 70 bn.
10.
Most developed economies growth rates are near 0
or below one in real terms.
11.
Stock markets everywhere touching respective all
time highs. More worrisome about 40% of all trading in US taking place away
from the regulated public exchanges in high frequency trading dark pools.
12.
Currency wars after Swiss franc delinked from
euro and global currency markets a veritable casino.
13.
Property bubbles in world top cities and some
emerging markets reaching frightening proportions.
14.
Gold still holding centre stage as the most
valuable asset class even tough dollar appears to be most valuable currency and
parking ground for funds.
15.
Commodities in excess supply and entering age of
uncertainty with decline in appetites of China and few others due to global
slowdown leading to lower prices and raising sceptre of deflationary processes.
16.
Agricultural prices stagnant though supplies
abundant.
17.
Ironically during period 2000-14, global wealth rose
more than 100% from $ 117 trn to $ 266 trn, indicating huge build up of savings
and capital resulting in low interest rates which has also blunted the tools of
monetary authorities.
18.
This has been accompanies by inordinate
increases in supply of workers mainly due to higher automation and robotisation
in factories leading to rise in painful unemployment. In many countries this
has squeezed the middle class and skewed the income distribution further
impacting adversely effective demand which comes from a strong middle class.
19.
Inventories of oil, coal, cotton, iron ore,
manufactured products and automobiles are at all time highs.
20.
China’s cooling demand with lowest GDP growth of
7% in 20 years has been one of major contributory factors.
21.
Looks like most of
the advanced economies have entered into long tunnels of stagnation and
abysmally low rates of growth, interest rates and inflations which Japan
entered in early 1990s. Europe is very much in the tunnel and US is fairly in
though it’s in a denial mode. China could be about 10-15 years away from it and
India probably about 25 years. The ultimate state of all economies is the
steady state where growth tapers off into a plateau.
