The history of the 1929 and 2000 downturns suggests the real pain is yet to come. Housing markets look terribly over-valued around the world, as I noted last month. And US consumer sentiment is at all-time lows. So most company earnings seem set to fall, with more than 60% of US CEOs now expecting to see a recession.
Chemicals and the Economy
Wall Street finally recognises a recession is underway – “It’s a hurricane…coming our way”
There are positives in all this, as the Green agenda will create new opportunities to replace those that are now disappearing. But for the moment, at least, the risks associated with a likely lengthy and deep recession are likely to dominate. Please be careful out there.
Smartphone sales set to tumble as China’s lockdowns continue
The market downturn couldn’t have come at a worse time for Apple. It was already facing major supply chain chaos in Q2. And now it has to face a major decline in the smartphone market itself. Inevitably this will lead to a brutal battle for market share as companies struggle to survive.
The chemicals industry continues to be the best leading indicator for the global economy
Central banks and investors believed stimulus programs had created a “New Paradigm” where asset prices would always increase. Now they are starting to realise that stimulus is irrelevant against the 3 Horsemen of the Apocalypse – China’s continuing battle with the pandemic, Russia’s invasion of Ukraine, and potential for famine as rising gas/fertilizer prices mean farmers can’t afford to grow their crops or feed their animals.
Time to focus on the danger of corporate and household leverage as “subprime on steroids” comes to an end
The seeming genius of many private equity funds in recent years has been based on this ability to borrow at cheap rates during the ‘up’ part of the business cycle. Now we are heading into the ‘down’ cycle. And the central banks have abandoned Bernanke Theory and are back to worrying about inflation. So today’s excess leverage means many over-leveraged companies will go bust.
The world’s real estate bubbles start to burst, as central banks pivot to focus on inflation
Problems in the housing market aren’t just confined to the US, UK, Germany and China. The average house price/income ratio is now back to the highest level since records began. And the problem for homeowners is that potential buyers are already starting to disappear as mortgage rates rise – and affordability reduces.
Putin’s war in Ukraine set to impact the real economy and financial markets
The issue is simply that investors are in a state of Denial. And so there is a growing risk of a financial crisis as reality finally dawns on them.
The Fed’s NASDAQ bubble starts to burst as Netflix, Facebook plunge 30%
The central banks are now abandoning the ‘Bernanke Doctrine’ set out in November 2010 – that what was good for markets, was good for the economy.
The stock market bubble starts to burst
Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
China’s ‘perpetual motion’ housing machine has started to slow
Evergrande’s default will only be the first of many. Companies and countries that have “bet the ranch” on China’s “perpetual motion machine” need to urgently decide how to minimise their potential losses, whilst there is still time.
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