Blog: You, us, everyone

Given the recent news (Glencore, VW Group, etc.), we expect uncertainties based on the present macroeconomic situation to remain on the high side. There are a number of reasons for this. During the past few weeks, and especially since the publication of the latest Fed comments, numerous reality checks have occurred and analysts and economics are now finding that results weren’t as bright as expected.
 
Until now, higher consumer spending was encouraged by good news from the job market, by higher direct or indirect revenue streams, low inflation, and by more general improvements such as the re-industrialization of Europe and the USA. But the reality is that the scope of this good news only applies in the short-term, and more importantly seeks to generate equally short-term improvements in consumer behavior. In fact, the present society is living in a short-term universe, and media such as smartphones and the Internet greatly encourage this mindset. The publication and addressing of more complex issues, such as the scandal at VW Group, the liquidity squeeze at Glencore, the migration flow towards Europe, and the end of the convergence cycle with major unsolved problems remaining in Latin America (which is highly dependent on mineral exports to China) has created an overflow of unpleasant information which has turned into a boomerang for investors.
 
While we believe that issues are often exaggerated, some major damage to the system has occurred. Even if GDP growth figures remain in line with forecasts, especially in Europe and China, markets should remain volatile for quite some time. There is no evidence to suggest that things will quickly change for the better. The major reason is that we have not yet seen the necessary major readjustments, e.g. much lower growth in EMA, a lower level of consumption in the USA, higher interest rates, and lower returns for financial investments. For the time being it’s easier and more lucrative to obtain profit from financial investments that speculate on the failure of someone else than by making investments that make people work and create sustainable profits.
 
Calculated from its top point in April, we have witnessed a general market correction of about 20%. Yet, no major corresponding economic change has taken place, except that China is preparing to be economically independent. At this stage, the recent market turbulences created by the VW Group case and the liquidity squeeze at Glencore appear to be more bottom-up issues rather than top-down economic events. However, if they aren’t, then we have definitely entered a new economic phase and a deep reality check could soon be on the cards.
 
Nobody is …