Each year, the fund management group, Pimco, hosts an informal conference in Newport Beach, CA. When the forum is finished, without fail, the group reports its minutes to journalists in London England- (a mecca for globalist interest groups).
The group has had its share of internal friction over the years- but has nevertheless been a major influencing force in determining the outlook of economic leaders globally. They decide what’s normal. Anytime a majority of market experts take a similar outlook, you can bet Pimco has had a say in it.
This year’s Pimco report has described the global outlook as ‘insecure, but stable.’ If that sounds oxymoronic to you, you’re not alone.
Essentially, Pimco believes this “new normal” will continue with America maintaining a growth factor of no better them 1.5 percent. Pimco expects China and Europe to stabilize at 5.5 percent growth.
Markets in these countries have been sustained, largely with the help of central banks, despite these low growth factors. But indicators, they say, point to a danger that this model may be running on fumes.
A shift toward negative rates caused many to lose faith, and a heavy dose of bond purchases by the European Central Bank have produced a disappointing 1 percent growth.
The next band-aid to the situation could be the central bank’s deliberate financing of a fiscal deficit- an idea that has a frightening amount of credence with influential people.
Mike Amey, of Pimco, says Japan has already gone to this extreme to shore up its economy. They already have a -6 percent GDP, and their central bank currently buys 80 percent of net insurance. But Amey says it’s unlikely this could happen in the US.
What all this means is that our economy is running without a backup plan. If a crisis were to occur, policymakers would have few options available to hold off austerity.
Economists say: The Real Danger is Political
Economists believe that the finance communities could keep things stable, that they have the proper expertise to do so. What many in the Pimco group are saying is that the real danger comes from the political class.
Protracted periods of low rates and slow growth have been good for investors but have taken a toll on voters- whose wages have stagnated in the face of rising expenses.
We’ve seen their discontent at the ballot boxes all over the world. Certain results have manifested as a direct hit for investors- such as the Novo Banco bail-out in Portugal, but even greater risks may be waiting.
Andrew Balls, Pimco’s CIO Global Fixed Income executive, says “It’s amazing, with so much instability, that people are considering a character like Donald Trump.”
Despite the fact that the powers of the US presidency are constrained by the US constitution and signs that Trump appears to have an appreciation for the founding document- Balls worries about Trump’s cavalier talk of default.
He considers it an invitation for reckless speculators to make a name for themselves by causing a stir.
Chiming in, Mike Amey, laments the risks posed by the Brexit vote–claiming that England leaving the EU would destabilize the global economy.
Economists Being Overly Political?
Pimco places 60/40 odds that the United Kingdom will vote to remain in the EU. If not, they predict the Bank of England will slash rates down to zero. This, they say, would cut short-term yields, and boost long-term yields.
Sterling, they say, would fall to $1.30 against the dollar and that the cumulative effect would be a 3 point decline in growth for two years- resulting in zero growth up to 2018.
The kind of populism- represented by Trump- they claim, is even more of a risk in Europe. But, their fears may well be exaggerated.
It’s clear that what Pimco and other market influencers are asking for is a curtailment of nationalism, the authority of appointed leaders, in the name of bolstering their own influence.
We’re told over and over again that a Trump presidency is too scary to consider. Likewise, they say a vote for British sovereignty will destabilize the whole world. They should realize we’ve heard this kind of talk before.
It’s a frightening world for fixed income managers, with low yields and high risks.
But at a time when voters in the US and elsewhere have so much to gain by saying no to further encroachments on their personal liberty and national sovereignty—it’s hard to see how a worst case scenario of a few more years of tight margins isn’t worth the renewed dignity that the common person stands to gain.
Regards,
Ethan Warrick
Editor
Wealth Authority
