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.
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Kind regards,
Petar Posledovich
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