Davos Warnings of a Geopolitical Recession Are Ominous

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Last Updated on: 22nd January 2019, 10:41 am

Davos is in full swing, and this year's conference reveals a much grimmer global economic reality than last year's did. PIMCO's Studzinkski raised three specters of problems challenging the world geopolitical economy with the protectionist policies of President Trump, the Brexit Crisis, and the rise and election of Brazilian President Jair Bolsonaro.

It is only the latest reminder of why you can not count on global equities' markets to be moving in a consistently straight line up. Gold makes sense in an IRA exactly because the world order has increasingly come unglued over the last several years and looks like it will only continue for the foreseeable future. Now is the time to start including some IRA-approved gold in your retirement portfolio. It is easier and safer than ever before now that you effortlessly can store your IRA gold in top offshore storage locations.

Global Financial Markets Are Still in Denial About Raging International Populism

The sad truth remains that financial markets have not yet come to grips with the continuing fall of populist dominoes around the world.
The PIMCO Managing Director and Vice Chairman John Studzinski addressed this concern while in the early days of the World Economic Forum, more simply known by its location at Davos, with:

“One of the things we didn't anticipate last year is we are increasingly in a geopolitical recession and we have spent the last 10 years very focused on the quantitative aspects of growth. Now we have got to deal with the personality aspects of growth.”

It is clear that markets are going to have to start coming to terms with the policies and agendas of the new populist leaders sooner or later. Realities in the U.S., U.K., Italy, Brazil, and other nations make this increasingly obvious.

Brazil the Latest Major Nation To Join the Club of Populist-Run Nations

In late October of this past year, the populist leader Jair Boslonaro of Brazil became the latest leader to win his country Brazil's presidency. He campaigned aggressively on a Trump-styled nationalist agenda. The right wing leader followed in the footsteps of Mexico's President Andres Manuel Lopez Obrador to become only the latest in the rising cadre of populist leaders of the Americas.

Meanwhile Brexit Threatens The Entire European Economy and Trade

Davos is especially nervous about the many problems in its own backyard this year. Europe, normally a beacon of calm in the global geopolitical storm, has as many problems as any other continent this year. Besides Brexit, we learned from Eurostat (the statistics office of the EU) this week that the 19 member euro zone's economy grew at its worst speed in four years for the third quarter 2018.

Apparently the warnings of the International Monetary Fund are coming to pass. Their most recent economic outlook report warned that the uncertainty created by the United Kingdom's imminent exit from the European Union is now a serious risk to the economic health of the entire EU.

Worse still for the cultured continent, the most recent financial crisis from a decade ago has emptied the ECB's proverbial toolbox. They have next to nothing left to use against the upcoming economic downturn, according to the CEO of multinational Dutch conglomerate DSM.

The IMF upped its risk warnings on Monday to future economic growth in the nations of the euro zone. They especially mentioned Germany and Italy. The greater problem is the long-lasting Sovereign Debt Crisis of 2012 that forced the European Central Bank into an aggressive and desperate bond buying quantitative easing program has not left much in the regional stimulus tool box to handle another unfolding economic crisis. What the ECB will do in response to the next unfolding economic crisis is anybody's guess.

DSM CEO Feike Sijbesma warned while at the Davos Forums:

“We need to realize that from a monetary perspective there is no ammunition left in Europe, the interest rate is at an all-time low, and also the quantitative easing program which we are now building down… So if we really get into an economic slowdown in Europe, I think the central banks and governments, from a monetary point of view, have no ammunition left to address it.”

These are stark warnings coming out of the world's largest GDP and global trading block the European Union. Ignore them at your own peril.

Real World Impacts of Geopolitical Populism Are Seriously Impacting Global Economics and Trade

In a recent telling survey of CEOs hailing from the most important global corporations, the company bosses have revealed an all-time high increase in pessimism towards international growth prospects. The PwC survey was time released to coincide with the World Economic Forum in Davos, Switzerland.

According to surveyed CEOs and Global PwC Chairman Bob Moritz, this year's new risks center on:

“trade conflicts which are outside of their control per say, the policy issues when you think about the EU and Brexit and a combination of climate changes and other aspects like that.”

This survey polls an impressive 1,300 CEOs from around the globe. It found that almost 30 percent of global business leaders feel international growth will drop over the coming 12 months. This is roughly six times the numbers from last year's survey.

It should not come as much of a surprise that the largest decline in CEO sentiment sprang from the North American CEOs. Optimism here plunged from last year's 63 percent to a mere 37 percent for this year. Bob Moritz described this phenomenon with:

“What you have now is not much more upside being seen, you see a lot more downside with the political agenda and trade conflicts, and no promise or hope for anything else like infrastructure.”

The International Monetary Fund picked up on some of these global geopolitical factors in their newly published and downbeat global growth forecasts for 2019. The IMF's Arancha Gonzalez warned that:

“Uncertainty now is having a real impact on the real economy as we have seen.”

According to the warnings of Gonzalez, the lack of international cooperation on a global scale in improving international trade rules over the last few months is only one important example of a longer term risk to global economic growth.

Volatility that was such a defining theme in global markets last year has returned. The last unwelcome bout of wild volatility caused international equities to post significant losses in December 2018. Making matters worse are the critical geopolitical thorny issues such as the United States and China's ongoing trade war, plus Brexit's upcoming climax. All the while, the increasing worries of slowing economic growth around the world do not show any signs of letting up.

The problems and concerns are serious enough that most market players believe the Federal Reserve is now paused in its interest rate raising agenda until further notice.

Gold Is Your Best Hope to Save the Core Value of Your Retirement Portfolio

The number of threats to your retirement portfolio are only growing with each passing day (especially as the potentially troubling Brexit finale nears in two months). You can take counter measures by buying gold in monthly installments. Now is the time to review the Gold IRA rollover rules and regulations while you still have the time and relative calm in the storm to do so. The top Gold IRA companies and bullion dealers are ranked for your convenience.

David Crowder
David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.

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