FED QE3 Coming U.S. Equities Reach 2012 High, China and India Slow Euro Dysfunctional
The global economic data is clear as losses are creeping into earnings reports from JP Morgan, Goldman Sachs, SONY ($5.6B loss), Europe and Asian markets. Emerging markets like China has slowed considerably in recent months while India’s output fell 3.5%. Both China and India rely on European markets which have faltered with Italy, Greece, Spain and France weakening. The sentiment among analyst has also begun to shift negative as Marc Faber, Volker, and Bill Gross, PIMCO bond fund cut holdings in emerging markets. Gross cut securities holdings to 7% from 10% in March 2012. This rapid move has cut Gross, PIMCO emerging market debt exposure to a two year low says James Rickman III, Director iHuman Evolution.
For 2012, the International Monetary Fund report shows a slowdown in the global economy. The market will not maintain upward momentum without massive FED QE3 stimulus. However, the political headwinds in America are negative on pumping more money into the economy by offering U.S. treasury bonds. It’s a strategy to kick the can down the road increasing debt that will have a major impact on the ability of future generations to create job growth, upgrade education and personal financial savings that will further hamper housing markets, comments James Rickman III.
If the economy deteriorates, we may be looking at a very tough 2012 November election bid for President Obama. It could benefit Presidential candidate Mitt Romney as the focus is on jobs and economic fiscal policy in the upcoming election. Romney, a budget hawk would cut the size of government and reduced spending but accelerate small business innovation and new job creation through private sector investment coupled with better foreign trade policies that benefit middle class Americans.
The Euro cannot be artificially stimulated forever, we may see over the next two years a break off in Spain, Italy, Greece and France headed back to issuing their own currencies again. Germany would remain the de-facto keeper of the EURO used like U.S. dollars are traded in South America. Such a plan would allow for easing and the write down of sovereign debt in troubled European countries. The governments in Europe must also provide jobs and economic opportunities to the people otherwise civil unrest will prevail as we see throughout the Middle East.
The global economic outlook has slowed rapidly as the price of oil, agriculture food commodities and equities have dropped further indicating a significant slowdown in output. Companies are reporting decent earnings but it cannot be sustained as markets slow particularly the emerging markets retreat will be pronounced. The U.S. debt is $15.7 trillion about 104% of GDP. Another round of FED quantitative easing (QE3) would push the U.S. debt to 120% - 130% of GDP. Such a strategy would likely result in a downgrade of U.S. credit ratings which would i