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  • Market volatility has been increasing

  • for a number of weeks now.

  • Is this the calm before the storm,

  • and are we in for a global recession?

  • I would argue that the next global downturn is already

  • upon us.

  • By some indications there are still a lot of positive signals

  • out there in the economy.

  • Politicians in the US talk about the robustness

  • of the US consumer.

  • And yes, the headline figures in spending

  • have been relatively strong given how late

  • we are in a recovery cycle.

  • But if you dig down deeper you start

  • to see some real fragility.

  • US consumers are starting to pare back on credit card debt.

  • They're also spending less on gasoline and motor fuel

  • in the middle of a summer vacation

  • season, which is quite unusual.

  • If you spread out beyond the borders of the US

  • and look at what's happening around the world,

  • you see the purchasing managers' indexes, which

  • are a very forward-looking indicator

  • of the global economy, are quite weak in places like France

  • and Germany, as well as the US.

  • The bond markets are sending some very negative signals.

  • We've seen inverted bond yield curves

  • in both the US and the UK, and these

  • are one of the best and most important

  • predictors of a coming recession.

  • I think that the thing that the market is going

  • to be looking for in the future is whether or not

  • there will be a US trade deal with China,

  • and I think that by all indications

  • that's not going to happen.

  • You'll see President Trump trying

  • to step in with a head fake now and again,

  • perhaps pushing tariffs back to help

  • delay the pain throughout the Christmas shopping season.

  • But fundamentally, the US is asking China to make changes

  • in the party, in its economy, in ways that it

  • feels are fundamentally unfair.

  • The Chinese have said that they will not accept anything

  • less than a deal of equals, and I

  • think that President Trump is constitutionally

  • incapable of crafting a win-win deal.

  • Beyond that, and at a very fundamental level,

  • you're looking at the fact that monetary policy is really

  • tapped out.

  • Central bankers have been the only game

  • in town for the last decade, if not the last four decades,

  • depending on where you would like to put the marker.

  • And the recent rate cut by the Fed simply didn't move markets.

  • I think that we are tapped out on what

  • we can do with monetary policy, and we need fiscal policy

  • now to step in and really create a new growth story.

  • Unfortunately, governments are gridlocked everywhere

  • - you have leftwing pop parties -

  • rightwing parties growing in many parts of the world.

  • And if the populous come to power

  • you may start to see some real shifts in the licence

  • that companies have to do business as usual.

  • All this to me says that we are headed

  • into the next global downturn.

Market volatility has been increasing

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