Pain Level
Pfäffikon SZ, Switzerland – The pain level of investors has been expertly scaled up the last few decades. Nothing seems to disorient investors. Several years ago, a hurricane in the Gulf of Mexico still created panic, today; nobody seems to care. Meanwhile, investors are pushing interest rates to a new low and even accept negative interest rates for ten years and longer.
Normal
The ‘new normal’ ensures that a Brexit is dismissed as a normal risk for the financial markets. The alarming words of different titans in the financial world are simply brushed aside by central bankers and politicians. The global stock market price decline just after the Brexit was an excellent opportunity for companies to buy back more of their overpriced shares at an interest rate of zero percent. But also some central banks participate in this game. The balance sheet of the Swiss National Bank is home to an impressive portfolio of tens of billions of Swiss francs in shares.
Focus
The Brexit makes sure investors are focusing on the wrong points, while simultaneously their carefully built wealth is plundered. The economic situation in Europe can still be classified as depressed. It is not surprising that several banking stocks showed new ‘all-time lows’ this week, not to mention the struggling insurers. In my eyes, the Brexit is just a phenomenon in a long European disease.
Deep Scars
Worrying is that nothing has been resolved and that it apparently does not matter. Greece has not been resolved. Japan with its demographic and deflationary impact does not matter. That China shortly will run out of its cash reserves and is heading for a classic crash in real estate does not matter. And that the global debt ratio increased by 50% since 2007, does not matter. And we’re still not mentioning the refugee crisis that is plaguing Europe for some time now and a (low) volatile oil price that leaves deep scars in key sectors worldwide.
According to the Deutsche Bank, the probability of a recession in the U.S. has been increased to 60% as the economy slowly comes to a stop. The general expectation is that the business data in the U.S. will do worse for the fourth consecutive quarter. In the first quarter of 2016, 50% more Chinese companies went bankrupt compared to a year ago, which reminds the undersigned of 2007. Europe falls slowly apart and has to deal with an Italian banking crisis, which can suddenly turn into a systemic crisis. An old maxim at the stock market is that a healthy financial sector is needed for a solid bull market; you can draw the conclusion. The pain level of citizens and investors is increased to a staggering level.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
