Monthly Archives: August 2016

Is Italy the next black swan?

There are a number of economic issues in the world which could provide the next economic shock and shake world markets. A prime candidate is Italy and its banking. system. Italy in the past has relied on currency devaluation to maintain its international competitiveness. Italy’s entry into the European Union made devaluation impossible and the economy is now in very bad shape. In recent years there has been an accumulation of bad assets on the balance sheets of Italy’s banks, where 18% of all loans are now classed as non-performing. The Italian banks alone have USD 400 billion in bad loans, equal to about 20% of Italian GDP. The Italian economy is ten times larger than the Greek economy and there is no way that the European Union has the ability or capacity to bail it out.

In October or November there will be an Italian constitutional referendum and Prime… Continue reading

Should I be fully invested?

The frantic activities of central banks in recent years shows no signs of abating and yet quantitative easing and falling interest rates have failed to stimulate any economies.

The effect has been to inflate and distort the value of assets worldwide. Future movements on equity markets are now in the hands of investors who have no alternative but to invest in stocks. In the United States, the markets are at record highs. It is interesting that at a time when there is so much economic uncertainty that there has been such little volatility on major equity markets, with the VIX remaining at very low levels.

It seems that it will now take a crisis to bring reality to the market place. Such a crisis could come from:

a.    A banking collapse, with the Italian banks seen as likely candidates. Italian banks alone have USD 400 billion in… Continue reading

Market Top?

The equity market is now looking expensive but it could well continue to go higher. With interest rates continuing to fall, investors in desperation are looking to the equities market. And yet a lot of money is not committed and remains on the sidelines. Will this money now flow in and fuel an already overheated market? It does seem to be a risky time to commit new funds to the market at a time when the policies of central banks have pushed asset values to very high levels and world growth continues to slow.

There will be the tendency for some investors to think that they are missing out and try to chase this market. However, September, a time when there is a higher probability of a market correction is fast approaching and there are emerging issues which could provide the ingredients for a market panic.

With the world political… Continue reading

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