There are just too many unknowns and risk factors that are keeping me from putting all my nest-egg in stocks. Right now, most of my holdings are in cash. But even the US dollar won’t be sustainable in the long run.
Here are just a few reasons I don’t really see a light at the end of this economic tunnel.
Greece started it, but it has spread to countries like Italy, Spain and Slovenia. Most countries are likely to follow.
I don’t see the northern European nations really wanting to carry their southern partners for too much longer. That means we will probably see the end of the Euro-Zone as we know it.
The transition will mean a lot of chaos and turmoil in that region. If they were a tiny economy, it wouldn’t be a big deal. But they are not.
They are one of the top economic regions in the world. That means they have a significant stake in global demand.
If they don’t buy stuff, the US, China and pretty much the rest of the world suffers. Even the strong, fast-growing emerging markets can’t sustain their growth because they will lose one of their biggest customers.
In order for us to move on, they have to make some hard decisions about these countries. They are currently not doing that. There is no resolution. There is no conclusion, except for more of the same. Reporters call it kicking the can down the road. Some have called it a slow motion train wreck.
Until they just let the wreck happen, they won’t be able to get themselves on the road to recovery. And I don’t see them letting it happen any time soon.
The US Deficit
The cold hard reality is that the US is not far behind. You are already hearing about cities filing for bankruptcy. And it’s not just the small towns and second rate cities doing it. Large cities are doing it and that is what is scary.
In fact, entire states are in trouble. You can California, which is the 11th largest economy in the world, is dealing with the same problems. They are spending too much and not growing fast enough to keep up.
There is a slow motion economic wreck starting to happen in the US.
China Economy Slowing Down
China has been growing at great speeds for the last 10 years. They have had 8+5342rowth consistently. Now they are slowing down.
Not only are they slowing down, they may actually experience a crash, especially in the housing market.
If you go to China, you will see tons of cranes everywhere. They are building these high rises at incredible rates.
There is only one problem. No one is buying them. You will find tons of high rise apartment buildings that are completely empty. And yet, they are continuing to build.
They also have a major political transition going on. Every ten years, they overhaul the leadership of the Communist Party. That is currently going on and we don’t know what the political and economic ramafications will be of that.
There are rumors that there are severe internal struggles. If that is the case, that might affect the economy.
How much it will affect will depend on how much of their economy is currently being floated by the central government. If it’s a lot, then it might crash. If it’s not, then it won’t be that bad. But let’s get real. The government is a huge reason the economy is rising at such rates. It is very closely controlled by the central government.
I just don’t see the continuing of such rates of growth in China. Not only because demand from the US and Europe will slow down, but also because of these internal issues I just mentioned.
Central Bank Stimulus
In order to keep the world financial system and their economies afloat, central banks around the world have been printing money. This has a couple of affects.
First, it devalues their currency. This enables other countries to buy things for cheaper.
As one central bank prints money, the other bankers have incentive to do the same. Then it becomes a vicious cycle.
All of this stimulus will catch up with the global financial system sooner or later. There will be a reckoning and when there is, the stock market will crash.
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