US and Global Stocks. Leverage(Debt). Recession. China!

Dear Reader,

US and global stock markets recovered some ground in the past week from the market rout two weeks ago.

I forecast the fall in US stock markets two weeks ago was just a momentary blip. Global stock markets will continue to party like its 1999 -2000 again. I think there will be recession and a large global stock market fall in 2020-2021.

US technology stocks will continue to lead the US stock market higher for the  next two or three years. The Federal Reserve will continue hiking the federal funds rate. US banks will benefit mildly from this development.

So what will cause the next recession? I think the next recession will be a bit shallower than the Great Recession of 2008 - 2009. Basically, it will be triggered by the too large leverage of the economic and financial system. The leverage has been building in the last two years and will continue to build for 2-3 more years. Some countries like China, Canada, Sweden, Australia and partly the US are heavily leveraged. Now that global rates are going up driven partly by the Federal Reserve, the tide could turn, adjustable loan rates will rise and it will become clear who is in trouble.

China is a case in point. Its growth since 2009 has been driven primarily by taking on more and more debt. This can not go forever. Sooner, rather than later the Chinese economy will register a large fall in GDP after many companies and households encounter difficulties paying their debts. Actually, the next recession could be triggered by the deterioration of China's economic prospects.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Market Rout. Where is the Bottom?

Dear Reader,

In the past week we witnessed a remarkable market rout. The panic in certain days was palpable. Fear was omnipresent. And no wonder after the recent euphoria and the buy the dip mentality which together with other factors caused a remarkable stock market rally since march 2009.

So where is the bottom of the stock market? Personally, I think the main indices S&P 500, DJIA, and Nasdaq Composite will shed 15-20% of their value from the their peaks in January, before recovery ensues.

Is there a danger for a systematic shock for the global financial system? Yes, there is danger. And it lurks in the proliferation of exchange traded funds(ETFs). ETFs have seen huge influx of money in the recent years which greatly contributed to the stock market rally in recent years. Now, the danger is what happens when the ETFs start selling? There could be an avalanche effect. Many banks, especially in Europe, have produced structured ETFs which basically hang on the creditworthiness of the issuing bank. Look what happened last week to the volatility ETF of Credit Suisse . If banks start incurring losses, the crisis could easily morph into a global systematic financial and economic shock.

Will the recent stock sell off turn in a global financial and economic shock? No, I do not think so. Basically, banks are now much more capitalized and look more stable. The global economy does not grow euphorically as in  2006 and 2007. Another wild card is China. If China's debt burden topples China, the crises could still become global.

In a nutshell, I think when the  S&P 500, DJIA, and Nasdaq Composite fall by more than 15% from their recent peaks, global stocks should begin to recover.

Will the economic cycle end soon, i.e. is a recession coming soon? Yes, I think there will be a shallow recession in the next two or three years, basically by 2021. However, it will not be provoked by the current market fall.

And after that, as in recent years, the global economic growth(GDP growth) will stay quite subdued 2-3% at the most per year.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich