Global Outlook 2016

I have written a post on my expectations for Nigeria in 2016, outlook not good. It’s time for me to look at the world in general. I expect 2016 to be the beginning of the end for the global economy. I predict a series of events, starting in 2016, which will lead to a global depression, a global depression that would make the great depression look mild. The good news is: 2016 will actually be a good year for some. The bad news is, it will be year the first domino will fall that will lead to the eventual depression. Let me start by making a statement on the current position of the various economic Powerhouses.

The Federal Reserve (FED) took the unusual but seemingly intelligent decision to drastically increase liquidity in order to escape the financial crisis. This worked because it dropped interest rates, meaning businesses had more money to produce, and simultaneously devalued the currency making exports cheaper. Plus they did it in a time when no one else was doing it. In December 2015 the FED raised rates for the first time. They needed to do this because interest rates is the tool used by central banks to regulate the economy, raise rates to cool things down and drop them to spur growth (obviously Godwin is the exception here). If the FED didn’t raise rates they would have no tools to stimulate the economy in the event of a slowdown.

The European Union is quite possibly the most exciting and ambitious political experiment to have ever taken place on this planet. The idea that countries that have been at war with itself for over a millennium can now come together under one roof is simply amazing. This has absolutely nothing to do with their current economic state but I just thought their politicians needed a shout out. Now, the EU is witnessing an economic decline. As a result the European Central Bank, ECB, has started quantitative easing or QE and is set to increase QE in 2016. This means that not only are interest rates at record lows but the currency has fallen dramatically. These are only set to get even lower.

 

Asia or Basically China, the Chinese Economy has been growing at breakneck speeds as far back as anyone can remember. Economists use growth rates when judging the success of any economy. This means when economic growth drops from say 10% to 6% it is viewed as a disaster. In real life that’s not necessarily accurate. Lets say I double $10 to $20; I would have made $10 while growing at 100%. Now if I turn my $20 to $35 I would have made $15 while only growing at 75%. To an economist my growth rate would have slowed down and it will be a warning sign, to me I would have made more money because I would now have $15 extra. Basically, China’s economic woes are being grossly over exaggerated. Yes the economy’s growth rate is slowing down but in reality the country is still growing at a very impressive rate, albeit from a much lower base. What everyone seems to be forgetting is that the country is transitioning from an export oriented society to a consumer led society. Chinese politicians don’t really know to handle this transition. They meddle in markets when they need to let markets correct themselves. They believe that depreciating the currency is the best way to spur exports, failing to realize that they shouldn’t be trying to spur export but rather concentrate on strengthening the Chinese consumer. And while they are not quite as foolish as Godwin they do make some silly moves.

Now lets tie all this together and see what 2016 holds. The USA is raising rates while the EU is increasing QE. US Businesses and consumers will find it credit more expensive while EU businesses and consumers will have money thrown at them. US exports will get more expensive while EU exports get cheaper. This will lead to a gradual decline in competitiveness of US businesses. This decline will lead to a slowdown in the US economy. Conversely, EU businesses will witness a boom. Businesses will borrow cheaply, sell more overseas and have a richer local market. Earnings are going to rise leading to record high equity prices. As for China, well they meddled with markets so they must pay. China will witness economic turmoil brought on by the silliness of Chinese politicians. Compared to Emefiele the Chinese are geniuses so you can imagine what I see happening to Nigeria.

 

Basically the place to be in 2016 is Europe, Germany to be specific. However like I said, 2016 will be the year to signal the beginning of the mother of all economic depressions. The USA will witness a slowdown; the FED will be forced to take rates back to zero, this it would lead to a loss of confidence in markets. This loss of confidence will ultimately lead to a bust like no other. But hey, lets enjoy the European party while it lasts. See you all in the DAX.

NIGERIA IN 2016

As 2015 comes to a close I believe it is time I gave my blog some much-needed attention. It has been a good year; in fact forget that, it has been an absolutely amazing year. I got introduced to one of the coolest people on the planet. Unfortunately can’t mention the name but the individual has been great mentor, someone my grand children will hear about. Got married to an amazing wife (believe me I don’t have to say that, she’s really cool) and bought a wonderful car, BMW are simply the best. Yes, like everybody else I had my own share of downs; losing a high 7 digit sum within a one week period was no fun but the lessons learned have been priceless. Maybe I could have blogged a bit more but hey, what can I say.

Enough of my personal introduction, time for me to strategise for 2016. 2015 is ending on a sour note. As I predicted the price of oil has capitulated and Nigeria has been caught with her pants down. I see people complaining and I’m like you guys don’t even know what’s about to hit you. 2016 is going to make 2015 look like the good old days. I really plead with my readers to try and put their political ideologies aside.

2016 is going to be a year of monumental civil unrest in this country (Nigeria). The federal and state governments are broke, we are fighting an insurgency with imported bullets and the price of our best product is falling. You all know this so why am I expecting unrest? Well the simple truth is that the problem is not the price of oil but rather the Nigerian mentality. The same mentality that has made past generations protest against subsidy removal is the same mentality that will drive the masses to the street. I call it the entitlement mentality.

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Nigerians believe they are entitled to things. They fail to realise that government is all of us. We can only get what we put in. If we all feel that because government is wasteful that we are therefore entitled to fuel subsidy then we all suffer. There are two very unconnected arguments linked by the entitlement mentality; firstly there is the government is wasteful argument, I don’t necessarily agree with it but I see its merits. Then there is the fuel subsidy argument. Both arguments aren’t connected unless you want to subconsciously support your entitlement mentality. Anyway Nigerians feel they are entitled to certain things and in 2016 the government simply wont have the money to provide these things. This will ultimately lead to civil unrest.

As per usual I will try to give my readers the way I feel they can strategise to navigate the economic waters of 2016. There is going to be only one business in Nigeria come 2016 and it is going to be agriculture. If you are not farming you are screwed. There is currently a debate between floating the currency and currency controls. Personally I couldn’t care less because any of the options chosen will lead to a poorer consumer. When consumers get hit they cut back on everything. In 2016 most Nigerians will be working just to feed. Few and mean very few people will be looking at luxuries.

Let me explain why I feel $35 a barrel oil will look like a luxury this time next year. Iranian sanctions get removed Q1 to Q2 of 2016 when that happens Iran will witness tremendous investment in it’s oil industry. This will push up their production and as we all know increased supply drives down price. The USA just started exporting so that wont help either. Basically oil is going sub $20 for a long time and that means that Nigerian governments (state and federal) would barely have enough money to pay salaries. 2016 will most likely witness the first government pay cut in the history of this country.

If you have funds in your domiciliary account I strongly urge you to either withdraw that cash and keep in your bible or transfer it abroad. We might just witness the nationalisation of foreign denominated savings.  If you cant start a farm I advise you invest in one (I happen to be packaging something so watch out). If you currently hold Nigerian equities I advise you to sell and buy dollars. No sector will be spared, winter is coming and it is going to be arctic cold. We are going to witness acute shortages of things, the shops will be empty; buy as much imported goods as you need as quickly as possible. When things get bad there will be no dollars to pay for our imports. Those who can still manage to get imported goods in will sell them at exorbitant prices.

So in summary, my best advice is that readers should endeavour to farm. If possible farm products that have an export market. Every other business in Nigeria will suffer. I pray non of my readers lose their jobs but job losses will be rampant. Commerce will suffer.

Happy New Year folks, Wish you all long life and prosperity.

P.S. If you want a blog that explains in detail why I foresee severe scarcity visit HERE