Quarterly Investment Outlook: September 2019
/SUMMARY
In an article entitled “Paradigm Shifts”, Ray Dalio, founder of Bridgewater Associates, anticipates the formation of a new monetary regime (featuring money printing) in the next decade. It will likely be driven by unorthodox fiscal policy aimed at bolstering consumer spending, featuring guaranteed incomes, wealth tax and “helicopter money”.
Federal deficits could rise by $12.2 trillion over the next decade, and that assumes no recession. Debt could approximate 140% of GDP according to Deutsche Bank Global Research. Higher deficits over the past two years is causing the government to ramp up borrowing, which is running at the annual rate of $1 trillion per annum.
The combination of both loose monetary and fiscal policies will drive a new inflation cycle. Commodity prices should enter a new bull market. Gold prices, having broken out of a 6-year base, are the “canary in the coal mine”.
The Conference Board Leading Index, which measured as a 12-month moving average of a 12- month roc, is at +3.65%. This is signaling continuing economic expansion. The IHS Eurozone Markit PMI Manufacturing Index has leveled off (slightly below 50) over the past six months, while the euro at 110 has cheapened, potentially giving European auto makers a reprieve. China’ Caixin Manufacturing PMI, taken from a sample of 500 firms, also ticked up in June. Business confidence was at a 3-month high.
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