Recession coming ?
Some days back i wrote an article remembering recession of 2008 and i mentioned why i am missing 2008 recession. When markets are trading near all time highs,No one even think about recession this time. When every one is talking about more and more highs in stock market, we are talking about another financial boom. Well i have different perspective and i am a bit cautious now. Why we may be heading towards another recession in 2016 – 2017 ? Lets find out.
Fed Interest rate increase
Fed has lowered interest rate after 2008 big crash and despite a heavy recovery in market, Fed did not raise any rate and its kept lower and lower interest rate at 0.25%, In 2008 recession Fed had an option to lower the interest rate to recover and give relief to market but this time its already at historic low it cant go lower that that from here ( ofcourse if fed decides to lend money on 0% like BOJ ). But there is very small room for fed to combat with market panic if it comes its way . There may be a bigger recession if things get slowdown cause most powerful central bank of world has very few weapons to combat with slowdown now.
In 1990’s everyone was going gaga over www and many investors poured their money in tech companies which later gone bankrupt and it caused tech bubble. Today’s scenario looking almost same if not same. Many unknown companies getting millions of dollars and betting on their future while a messaging company Whatsapp gets 13 billion$ buyer as facebook, Remember whatsapp makes almost no money compare to its valuation. Uber valuation came staggering 60 Billion while it was 40 Billion 1 year ago, ( Uber is banned in many countries and fighting for its existence in many countries ) So many other companies getting over the top valuations and investors pouring their money on their future while only few companies looks promising. I wont bet it would be like 1990’s bubble but there would be a large chunk of money which gonna disappear when this tech bubble burst.
Crude oil prices
Crude oil prices trading almost at 5 years low near 50-60$ and many analysts are betting it wont go above 70$. Well it may be true and price could stay lower but there is war going on in middle east between ISISI and Iraq, Syria vs Saudi, and many more bombings on daily basis. Despite that crude oil is trading stable which is pretty fishy. So once this conspiracy blow up which is lowering crude oil prices to fight with US shell business its gonna be a Mayhem in almost all economies including US and China.
China’s Slow down
Shanghai delivered astonishing 120% return in last 1 year with almost no fundamental change. There is almost 5-6% move everyday in chinese stock market on daily basis, It has become so big that despite number 2 economy i would rate it number 1 because china has more money in hand than US and its slowing down. It grew at slowest pace in last 25 years. China seems to reach at saturated point where growing with same pace is very difficult and world has to adjust according to that, many economies are dependent on china so world economies gonna feel the heat soon when it slow down.
Greece has been acting like a daily soap , every now and then acting like its gonna default but get a deal in the end and almost same episode continues every month , but even if Greece matter sorts out , Japan is in recession , Eurozone is in deep recession , Russia is in recession , there is so much to recover before going for another financial boom , Many European countries are waiting to get a bail package from IMF and its gonna be a real mess when world shifts from today’s highs to recession. If Greece defaults many countries may follow the way of default like Spain and Portugal.
Trade war between US and China is another reason which may result in meltdown. Once China and US starts real sanctions on each other’s company we may result in meltdown and it could trigger global slowdown which may result in global recession. We may face worse recession than 2008 as market’s build up is pretty good this time and we are almost double since 2016 ( Wall Street ).
Will add more in this post soon.
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