After a decade of massive central bank stimulus from the US, Europe, China and Japan, the world is now looking at the normalization of monetary policy and the likely reaction to this normalization is shocking equity sell-offs like the ones we have seen in November and December of 2018. These shocks are normal and necessary, markets are clearly overbought as investors expect an economic slowdown and trade wars with the US and China at the core. The Fed hike trajectory will also be at the center of financial and economic discussions. But this is just the beginning of a massive shift from global institutions to regional institutions.
1. The fantastic performance by investors after 10 years of easy monetary policy has run its course. For those who are not finance experts, interest rates will slowly rise.
2. Free and easy money fades the wide range of stocks, index will struggle, but this presents opportunities for stock pickers.
3. US – China trade tensions are bigger than Trump. The post-WWII system with the WTO, World Bank, and Bretton-Woods at its core started falling apart in 1991. China and the US know the system is dying, they are acting accordingly.
4. As geopolitical scientist Ian Bremmer predicted in 2012, the G-7 world will become a G-Zero world.
5. Global power institutions and treaties like Bretton-Woods, World Trade Organization, World Bank and OPEC are slowly melting away. Regional institutions like the US-Mexico-Canada alliance (post-NAFTA) will spout up or the US becomes energy independent, so Saudi Arabia, Iran and Iraq are now meaningless.
6. Supply chains of energy, food and goods and services are all disrupted.
7. Chaos will be the new normal in the world of trade and energy security.
Please keep in mind that from 1945 to 2015/now, the world of global systems like IMF, WTO, Bretton-Woods were artificial and temporary – all a knee jerk reaction that arose from the ashes of WWII – and now in 2019/2020 the world starts for revert to the old order, which is in fact, was more or less a form of managed chaos. Here comes chaos.