The Phoenix Year was written many years back. The significant events take place late in 2016, so the forecast for the world economy that accompany the story line are broadly drawn from our expectations about tomorrow. So how much do I believe will come to pass and what is unlikely. One chapter “Washington Nightmares” stands out illustrating the events prior to 2016. “Washington Nightmares” offers some ideas about the period between 2015 through 2016.
Some of the events highlighted:
• Global growth falters during this period. Aside from a stronger recovery in the United States that was not fully expected, but might not continue, the slow growth in Europe and the slower growth in China are part of the story line.
• Commodity prices including crude oil prices fall to new lows. We have already seen a steep decline in crude prices from over $100 to less than $50. We may not reach the $30 lows reached in the book by 2016, but it is not impossible. Other raw material prices have also declined as global demand has started to decline. The boom in demand coming from China has ended. The impact has been felt in Australia, but also in other countries selling primary raw materials including Russia.
• World trade slows. This should be expected as a natural corollary of slower worldwide growth. The impact of a slowing Asia is felt more in the trade intensive countries of Western Europe, Germany in particular, than in the United States that exports a mix of manufactures and primary products – wood, grain, and now crude oil. My long term forecast for world trade growth is in the mid 4% range in price and exchange rate adjusted dollars for the period after this year.
• Wages continue to stagnate even as private company profits remain strong. This has been the pattern of the last decade and we can’t see anything changing this. Moreover, the slower growth in Western Europe and in Asia will slow the wage growth in these regions as well. The increasing inequality is one of the reasons that Von Kleise decides that only by destroying Wall Street’s obsession with next quarters profits can any there any long term future for American style capitalism.
• Stock market performance is uneven in the story, driven by programmed trading and manipulation by the work of the Society of the Phoenix. In the book, the DOW falls to around 13,000 prior to the sudden collapse after reaching a high in 2014. The high was reached in 2014 with the index breaching 18000 late in the year. In the book, economic statistics that drive equity market ups and downs even today are manipulated. The rapid increases and sudden falls are one result that is mentioned. We have seen 300 or even 500 point ups and downs in the DOW over this period. Once you build in hair trigger responses for traders you can make them like Pavlovian dogs when the signals are then manipulated in a way to create a psychological response that says – Sell, Sell, Sell. The current best guess is that the DOW will remain close to this high for most of next year as the US economy continues to outperform the rest of the world economies. But the double digit growth is unlikely to continue. This is a by-product of the significant drop in the price of gasoline and the likelihood that other sectors may pick up any slack coming from the energy sector as falling crude prices will impact new investments in exploiting shale oil deposits.
• In the book, one of the story lines is a manipulation of the core economic data that guides governments in their policy and investors. One of the ideas for this is that it is outsourced to Third World countries. This apparently has happened, but in the book there is a systematic effort to confuse the story.
• Market sensitivity to extreme events is a fact. Any event, even as minor as a rumor about the failure of countries such as Greece to meet their pledge on finances, could rile markets all over the world. Anything impacting international banks, like the moratorium on repaying the debt or a sudden change in the German government position on staying on the Euro or remaining in the European Union would have a major negative impact on stock markets. Psychological profiling plays a role in market strategies. When markets begin to turn from bull to bear, then the smart money gets out ahead of the stampede.
• Much of the book deals with the problems of Russia. In the book, the price of oil collapsing is a major event that forces the Russian government to secretly sell the gold to keep products in the stores for consumers used to buying foreign goods. The collapse of the ruble that has come from the combination of sanctions reducing foreign investments and the collapse in the oil price was not fully included in the story line, but is indirectly there. In the book, the government is forced to use all its foreign currency reserves to support the currency and keep the flow of needed foreign made goods in the stores. This secret sale of the gold may happen yet. To do it openly would send the currency even lower than it is today.
The Phoenix Year is available now!