Slowing World Markets And A Global Debt Bomb Bear Watching

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Includes: ADRD, DBEF, DDBI, DEFA, DPK, DZK, EFA, EFO, EFU, EFZ, ESGD, FDT, FWDI, GAB, HEFA, HFXI, IDHQ, IEFA, KLDW, LLDM, MFLA, RFDI, RODM, URTH, VEA
by: Kal Telage

Summary

Slowing global investment correlated with increasing levels of higher debt threatens world markets.

A post-globalization landscape threatens trade and the wider economy.

The global debt pile continues to grow and has potential for contagion.

Seventeen countries have the highest debt levels in the trillions, high debt per capita and high debt to GDP ratios.

Global economic slowdowns and national debt are important macro variables to monitor at this point.

Source WSJ

Slowing Globalization

The United Nations warned that slowing overseas investment by businesses around the world threatens the growth of trade and the wider economy. Is the party coming to a close? Marino Valensise, head of the multi-asset team at Barings, a member of the MassMutual Financial group with $275 billion in assets said, "we believe globalization has probably reached its peak."

Thee Baring managers say the slowdown in global trade is one factor leading them to move away from stocks that ha benefit most from globalization and into places like bonds, which are in some cases better valued than the U.S. stock market and may suffer less amid rising geopolitical tensions.

Protectionist policies are on the rise. Anti trade trends such as increases in tariffs could cause long-term damage to the world economy that could spill over to corporate profits.

Credit Suisse chief investment officer for Europe, Michael O'sullivan, said investors are facing a "postglobalization" landscape during which the markets are facing greater uncertainty.

According to the world trade organization, global trade is expected to grow at its slowest pace since 2007. The world is suffering from unprecedented proportions.

Global Debt

The IMF is worried about the world's $152 trillion debt pile which has surged to 225% of global GDP. This includes debt held by governments, non-financial firms and households.

There's no consensus on what levels of debt to GDP should be considered alarming according to the IMF. But high debt is linked to lower growth.

Source WSJ

China and the EU were flagged as economies where deleveraging is particularly important. Debt is contagious and has the potential for another financial crisis.

Debt in the Trillions

The source below lists 17 countries with the highest debt, debt per capita and debt % of GDP. The U.S has the highest debt, more than double the United Kingdom which is second, but has a much lower debt to GDP ratio.

Source Wikipedia

Shedding More Light

The debt situation is real and growing. I believe macro economics are important to watch if you are an investor. This week 10/17 to 10/21 highlights a number of important reports including:

  • A gauge of U.S industrial activity
  • Economic data from China
  • European report on consumer confidence
  • A policy decision from the European Central Bank

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Additional disclosure: The information and data that comprise this article came from external sources that I consider reliable, but have not verified. My points of view are reasoned opinions and not investment advise. I am not responsible for investment decisions you make.