News

Cheap Oil and Global Deflation, Made in China

It’s Not All Bad – The US is Back On Top

Let’s start on a positive note – the only major economy to have their forecasts upgraded in the past year was the United States. In 2015, Fathom expects GDP growth of 4.1 percent; if delivered this would be the best annual rate in more than a decade. Why? Against the backdrop of cheaper oil and a tighter labor market, private consumption expanded by 4.3 percent in the final quarter of 2014, its fastest rate of growth since the onset of the Global Financial Crisis. The labor market has enjoyed its longest run of net job creation since payroll data was first collected in 1939; combined with underlying productivity growth, this will start to put upward pressure on national incomes.…

A Match Made in Trade Heaven

Senior representatives of the Latin American and the Caribbean (CELAC) states travelled to Beijing early in January to “consolidate the ever-lasting friendship” between these two global economic powerhouses. A new framework was proposed to increase bilateral trade to US$500 billion, and raise Chinese investment into Latin America to US$250 billion, with both targets to be achieved by 2020. If reached, the latter figure would represent a 150 percent increase on the current level.

Though unprecedented, targeting this level of investment and financial partnership has been over a decade in the making. Between 2000 and 2009, China increased bilateral trade with Latin America from US$13 billion to $120 billion, a nine-fold increase.…

Building Better Economic BRICs

It has been 13 years since Jim O Neill from Goldman Sachs declared it was “time for building better economic BRICs,” introducing Brazil, Russia, India and China as the next four powerhouses of the global economy. In the ten years since the announcement, China secured itself as the second largest economic power in the world, India’s GDP quadrupled to $2 billion, the value of Brazilian exports rose by 400 percent and Russia’s middle class doubled in size to 104 million.

BRICs Have Outpaced the US and EU In Terms of Growth

Turn to 2014 and the BRICs are forecast to be as large as the G7 by 2035.…

A Lower Oil Price Will Set Venezuela Ablaze

On Tuesday January 13^th Moody’s downgraded Venezuela to Caas3, a rating one step away from default and equivalent to that of war-torn Ukraine. Venezuelan inflation is more than 65% at tapered government figures, extreme currency controls value the US$ at a 28^th of the free market price and a widening balance of payments issue is being catalysed by the crash in oil price. The country with the greatest oil reserves on the planet now finds itself on the brink of economic and social collapse; one that their current leadership is entirely unable, unwilling and unprepared to deal with.

The Venezuelan Economy is Deteriorating Alongside the Oil Price

Much like Russia, Venezuela is heavily dependant on oil exports and has so far exclusively relied on these windfall profits to avert full economic meltdown.…

New Year, Same Old Problems

“There are more questions than answers. And the more I find out the less I know”

Johnny Nash – I Can See Clearly Now, Epic Records

Having been caught out by the strength of equity and bond markets during 2014 due to a blend of investment and geopolitical concerns, forecasters and strategists are forced once more into the annual humiliation of predicting the outcome for the next twelve months. This time round, the issues to be considered are pretty clear-cut and there is no reason why you, the readers of this newsletter, shouldn’t prove as adept or even more accurate than Street based professionals…

Relative Price Performance Since February 2013 (%)

The Fed’s current difficulty is well illustrated by the strength of economy in the United States, growing by 5% in the third quarter of 2014, and an anomalous Fed Funds rate of 0.25%.…

Maybe, Just Maybe, 2015 Will Be Different

80% of global equity markets capitalization is currently underpinned by zero interest rates, and 50% of government bonds globally yield 1% or less.  The ramifications for mainstream assets when the Fed raises rates, expected in 2015,  will therefore be far reaching.

Surveyed from the foothills of December, in 2015 investors will have to battle weak economic growth, low inflation, disappointing levels of investment and capital underutilization. This is in sharp contrast with the benign vision that has faced us for the past few years.

The halving of the oil price since June, and the associated Russian rouble melt-down, are just two potentially long-lived issues for the global economy to grapple with in the New Year.…

Closing the Retirement Liability Gap

Retirement is an unpopular subject for governments and voters to deal with. For the former, the political risk of imposing unpopular costs is great. For voters, their twenty-plus years in retirement are a constant reminder of the truth expounded by economist Herbert Stein: “if something cannot go on forever, it will stop”.

The start of 2015 will see ‘stagflation’ stalk large sections of the global economy. Against this backdrop, it is highly unlikely there will be any meaningful upward revisions to productivity. Without them, ageing populations in western economies will cut growth by 30-50% over the next two decades. Increasing numbers of retirees will make the transition from becoming net contributors to government coffers to becoming recipients of pension and other supplementary benefits.…