Markets performed quite well this week across the globe, but let’s not get our hopes up so high. European fundamentals still haven’t markedly changed while Greece’s fate is still in the hands of its bondholders. In other words, don’t jump full on into equity ETFs.
This week’s video from Nouriel Roubini and Ian Bremmer highlights some of the risks plaguing the global financial system. Not only is Europe stagnating, but China’s growth is slowing down, revealing the extent of the global recession. With China already in a currency war with the U.S. that will only get messier as China’s exports slow down, the eco-political tension will surely heighten.
Furthermore, the general process of deleveraging in Europe and the U.S. continues to have a negative impact on the global economy. In addition to the uncertainty surrounding whether Greece will default, Dr. Doom believes other PIIGS members will have to restructure their debt. However, this would be an insurmountable task for Italy and Spain, who collectively account for nearly $4 trillion in debt.
With mounting economic challenges in Europe and China as well as Middle East instability for that matter, we are certainly in a risky market environment, which supports my view that an exit strategy for your investments is an absolute necessity.
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Comments 1
In my view, the most important topic in that video was oil.
At the current rate (~$3.50/gal.) there is a transfer of wealth occuring in the US from consumers to oil interests in the middle-east or wherever. If prices continue to rise, as I believe they will, it will be the largest drag on the US economy. Not only from a consumer prospective but also a housing market perspective.
Should gas rise to $5.00/gal. you will have an impact not only on the consumer, but each time the consumer pumps more dollars into their tanks it will come directly from the price of their house. If they need to sell their house and their house is in the suburbs then someone will have to pay more for gas to commute and may decide to buy closer into town, or offer less for a house in the suburbs, putting further pressure on the housing market prices overall.
Higher gas costs and the effect on house prices are two things that will require investors to be ever more vigilant with their sell-stop methodologies.