If you follow my writings, you’ll often hear me talk about how the United States is the oasis around the world. Today, I’d like to take a look at why that is. Geopolitics is an important context for any smart investing strategy – and that’s especially true as we prepare for 2020…
There’s a lot of chaos in Europe right now. There’s been a major slowdown in China, and Japan, Italy and now Germany fell into a recession. And, of course, there’s Brexit – the most chaotic mess of them all.
Here’s a quick recap: Back in late 2016, Britain voted to leave the European Union (EU). The vote shocked the world, especially the EU and even the people of Britain. So, in the nearly three years since, the EU and British Parliament have failed to come to a deal, and the initial Brexit date of March 29, 2019, passed. The date was pushed to April, then May and the EU eventually settled on October 31…then January 31! As a result, we’re all left wondering: How long will Brexit uncertainty remain a thorn in everyone’s side?
Meanwhile, the economic reports in Europe have been grim:
In September, the purchasing managers index (PMI) for the European Union slipped to an 83-month low of 45.6, down from 47 in August. This was a big surprise. Economists were expecting a PMI of 47.3 in September. Even worse, Germany’s manufacturing PMI dropped to 41.4 in September, down from 43.5 in August. That’s the lowest level in more than a decade.
Since any reading under 50 signals a contraction, there is no doubt that Europe is facing a decline in economic growth. As you may know, Germany is the economic powerhouse in Europe. But Germany’s GDP contracted in the second quarter. And if the latest PMI data are any indication, Germany’s GDP is set to decline in the third quarter. Two quarters of negative GDP growth in a row officially signals a recession.
Japan isn’t faring much better.
In the third quarter of 2018, the Japanese GDP fell 2%. (Those are the kind of figures that make America’s 2% growth quite a relief, by comparison.)
Things started looking up this year in the second quarter, when Japan posted 1.8% GDP growth. But now, Japan’s gotten knocked down again to just 0.2% growth in the third quarter, which fell far short of expectations for 0.8% growth.
Why? Well, like the rest of us, Japan relies on international trade networks. And those are experiencing some disruption from the U.S.-China trade war.
We took a look at the trade war on Thursday, and economically, it certainly seems to be impacting China as well. Prior to that, in 2017, China’s GDP was running at a nice growth rate of 6.9%. Now, in the third quarter, China posted 6% GDP growth. Believe it or not, that’s the least growth China has had since the early 1990s.
And I’m not the only one who’s concerned about these data points around the world:
Here in the United States, our Federal Reserve is very sensitive to global events. Fed members have been particularly concerned about slowing economic growth in China and Europe, as well as here in the U.S. However, the U.S. is still one of the few countries with positive interest rates. As a result, a massive international capital flight has effectively suppressed U.S. Treasury yields.
But will that continue in 2020?
That, of course, is the question now. As you’ve seen in the past week, I’ve been researching these situations closely.
And on Tuesday, Dec. 10, at the Early Warning Summit 2020, I’ll make my case for where I expect the market to go from here. For the first time ever, I’m going to share a stage with “big trend” investor Matt McCall, and we’ll reveal where we believe the market will go in 2020 and why.
Note: Even before the big event, I don’t mind telling you that something big could be in store for stocks in 2020. My computer models haven’t been this active since right before the dot-com crash and the ’08 financial crisis.
In short, several headwinds are converging in the markets at once and they will drastically impact the share price of virtually every stock. Prepare now and you could have the chance to make a fortune, but ignore this warning and it could cost you dearly. Along with my InvestorPlace colleague Matt McCall, I’m holding an emergency briefing on Dec. 10 at 7 p.m. (EST). I strongly urge you to attend.