. . . the problem is we don’t know which and in what order . . . .
A close friend, far richer and better-informed than I (not difficult) sent me some completely speculative global economic notes, which he admits depend upon force majeure and all that. See how many you agree with. I personally think the oil price drop is overstated, since China, India, parts of SE Asia some parts of Latin America but particularly Brazil are still growing. If India and China descend into full blown recession, then the world is in terminal trouble and we had better get used to austerity, if we’re not already there.
• Complete and fairly permanent reduction of bank credit globally, with certainly 3 and possibly 10 years or more of credit limitation. Absolutely no chance of inflation in the UK, USA or Western European Euro nations for the next 3 – 5 years at least.
• Big potential arbitrage play between € and $.
• Swiss franc and US dollar the only worthwhile currencies for the next 24 months. Sterling to be back at 1.35€ – 1.50€ within 3 years, due to the relative economic weakness across the Eurozone. US dollar to be 1.05 – 1.15 against sterling by 2010 / 2011 (it currently stands at 0.68).
• Oil to bottom at between $16.00 and $19.00 per barrel over the next 12 months (currently $51.00).
All bets are off if the US adopts protectionism, apart from currency levels, which will be about the same and the oil price which will be even lower. If protectionism were to take hold in the USA the downside will be greater in the UK, Europe and China. (This last one I agree with, wholeheartedly).
Happy Easter, John J Kelly