Clouds are forming.
One or two comments on the news in the last few days:
- Business activity remains solid in the US. The composite purchasing index for service and manufacture is at 52 (below 50 means the economy is contracting). This is someway south of the 58+ scored in early 2018 but, taken on its own, it is encouraging.
- The trouble is that it cannot be taken on its own. The Eurozone is failing, Japan is below 50 and the UK is already tumbling below 48. Europe is disorentated and leaderless; despte all the cover up and platitudes Brexit will savage the UK economy and the effect is already being seen. Most nations in Europe are fighting breakaway nationalism at home, all are in increasing thrall to Russia as the US shows itself disinterested and unaware.
- Back in the US, banks are concerned at the potential default risk of private equity owned firms. More than half the leveraged buyouts carry debt 6 times the ability to pay. S&P Global Ratings has published a pessimistic scenario suggesting the default rate could double in 2020. The value of loans outstanding is $1.2 trillion!
- So the story continues. The US remains the place to invest. But clouds are forming. Europe our largest trading partner is in disarray. At home the relentlesss pursuit of higher returns, no matter how unrealistic, is creating the disastrous prospect of corporate default.Have a good day, James