Fragile Spiral
Pfäffikon SZ, Switzerland – Despite many promises from politicians and other policymakers, the economic recovery remains fragile. The latest economic data confirm a mixed picture, and the outlook is also not promising. More and more countries are struggling with their bulging debt. The economic spiral that has ensured growth for centuries has been slowly dismantled.
Saving
The traditional model of saving and investing ensured production, which generated income and consumption. Coincidence or not, the retail sector has been reporting disappointing results for some time. Several market researchers see in the falling prices of retail stocks a harbinger of an impending global recession. Currently, the rates of the stock market in general and the retail stocks differ widely. E-commerce should also be taken into consideration. When in this discipline sales figures also disappoint, this will be a warning signal
Pillars
Demography and production are two important pillars of the economy that are in motion. The labor force has stagnated in most developed countries because of the aging population. The demographic gorilla is doing his job; this is an irreversible process. Some countries are trying to change the demographic state of affairs by applying a (too) flexible immigration policy. Whether this will break the demographic trend is still questionable.
Debt
Productivity and consumption can be influenced more easily than demographic change. Central bankers have made every effort to boost productivity and consumption with their extreme monetary policy, coupled with ––in some cases–– a negative interest rate. The first step in the traditional spiral is saving, which now has been replaced by debt. Much of this debt is used for consumption, which is not a sustainable model and breaks with the traditional spiral. For many it is an economic mystery that productivity has been falling structurally since 2000. However, debt is becoming an inhibiting factor for many. That the technological development is clearly not able to eliminate this negative debt factor makes the situation a little worrying.
It should be no surprise that in the U.S. for example, Donald Trump is popular, and a Brexit no longer can be ruled out. Large populations are unhappy and are looking for alternatives. Whether these new political movements will provide a solution is still questionable. The traditional economic spiral is fragile and is perhaps already in a destructive phase. To understand and repair the fundamentals of the spiral will be an extremely difficult and painful process.
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.
