The following editorial was published in Price Perceptions issue #1459A on June 16, 2012
Chaos, Confusion and Contempt...
Economic growth is slowing in China, India, Japan, South Korea, Brazil and the US. Europe is already in recession and has bailed out Greece, Ireland, Portugal and as of this week, Spanish banks. Greece will hold elections this weekend and threaten to leave the Euro Zone and default on its debts. The Arab Spring has led to tribal wars and conflict as they have been unable to agree on common leaders and government. The highest court in Egypt dissolved the recently elected parliament. The US faces what has become known as the “fiscal cliff” next January if Congress is unable to find solutions (See editorial in May 12, 2012 issue of Price Perceptions).
The inability of world leaders and organizations to come to grips with ever-growing economic problems and spreading conflicts in the Middle East is leading to chaos in global financial and commodity markets. The Middle East and Northern Africa nations are the world’s largest importers of grains. Who will finance their imports in months and years ahead if they are unable to form credible governments?
EU officials tell member nations they must become more efficient and grow exports if they are to solve their debt problems... But, who can they expand exports to? China, Japan, Brazil and the US blame slowing EU imports for poor economic performance. Global Trade Alert, a monitoring service of ST Gallen University in Switzerland, said this week: “Despite the G20’s pledge in 2008 to maintain free trade, its member countries are responsible for nearly 80% of global protectionist actions this year.” Apparently, nations are resorting more and more to protectionism in an effort to keep jobs at home. Massive bailouts, insolvent nations, currency wars, quantitative easing and growing protectionism are leading to extreme confusion in nearly all world markets.
Greeks are moving into panic mode, buying food and withdrawing $1 billion per day from banks. Bank runs were reported this week in Spain and Italy as individuals and companies move deposits to safe havens in Germany, Switzerland and the US. Investors are reportedly moving out of commodity index funds and ETF’s. US corporations reportedly hold nearly $3 trillion in cash as they are reluctant to invest in new facilities because of political and economic uncertainty. Contempt for the inability of governments and central bankers to provide meaningful solutions is leading business; investors and individuals to withdraw from markets and move money to safe havens.
Markets are becoming accustomed to cycles of liquidity injection and withdrawal. Commodities are currently experiencing the withdrawal phase of the cycle. Many economists are calling for the world’s central bankers to turn the money pump back on. The Institute of International Finance (IIF) said this week: “The world is in serious need of a positive confidence shock.” Until more positive economic steps are undertaken, the negative phase is likely to continue undermining otherwise bullish.
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