The Great Financial Disconnect!

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The G-7 global finance meeting failed to yield fresh ideas for spurring global growth.

The Finance ministers of the Group of Seven major economies ended a weekend meeting without agreement on a plan to revive global growth. Most of the G-7 governments favor official action to stimulate demand, but Germany is more conservative. Instead, finance ministers stressed the importance of varying action for each country.

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They have ‘financially engineered’ many life times of public debt, without any success of getting us out of this ‘deflationary spiral’. They had anticipated that these funds provided to the banks would filter down to ‘Main Street’. They were expecting the private sector to spend but they have not.

The global Central Bankers have been struggling to convince businesses to invest in ‘capital spending’ and ‘raise wages’, but this has been a futile effort.

Companies and banks have engaged in ‘record profits’ thanks to ‘easy money’ policies. The major economic problem is the lack of “aggregate demand”. There is no such demand that currently exist globally.

Apparently, the finance leaders of the Group of Seven Industrial Powers have still not learned from their ‘misjudgments’. We are once again doomed to repeat these same mistakes, over and over, again. The solution is not that of ‘monetary stimulus’, but rather of ‘fiscal stimulus’. There needs to be ‘structural reforms’ that should have been implemented, several years ago.

China’s economic contractions have finally caught up to the rest of the world. There was an unprecedented period of ‘rapid growth’ and development from the 1990’s until 2011. It is now experiencing a ‘severe economic slowdown’ which has spread into developing new global financial crisis’ which are presently rippling throughout the world, today!

China brought 800 million of its citizens out of extreme poverty! The government is now shutting down overcapacity in their coal, steel and other heavy industries. Their huge debts and cash flow problems are running throughout their local governments, state owned enterprises and property sectors. There are outbreaks of speculating with their stock markets, and their currency and the corporate bond markets that have now created a global financial ‘systemic risk’ within the banking sector.

It Is Time To WAKE UP!

Currently, global financial markets are extremely ‘distorted’! This spells out danger for both investors and businesses since it is impossible to properly allocate ‘capital efficiently’ within this current economic and financial environment.
The interventions from global Central Bankers and governments have created ‘economic chaos’ by leaving huge debt levels that is near impossible be able to be paid off.

With markets everywhere disrupted by this ‘financial engineering’, do any investors know where to place their money, these days?

It is my belief, that the FED is boxed into a corner. They will not likely raise their short- term interest rates, but they will also be forced to implement QE 4 and/or NIRP in order to hold together the ‘economic house-of-cards’ together!
Recently, the U.S. stock market highs and those of 2008 both occurred under similar economic fundamentals that were rapidly deteriorating. Today, markets are displaying the same exact same pattern that we experienced in 2008.

Unfortunately, this same scenario pattern is right in front of us, again!

Investors have pulled another $3.9 billion from U.S. based stock funds, during the week that ended on May 18th, 2016. This new trend of ‘outflows’ has constantly persisted during most of this year.

Year-to-date outflows from U.S based stock funds, now total $45 billion which rivals the $50 billion in ‘outflows’ during all of 2011. The funds bled out more than $72 billion, in 2008, during the peak of the ‘financial crisis’. This is substantially due to mutual fund investors bailing out of domestic U.S. stocks.

The last ‘crisis’ struck uninformed investors without any warning signs. Consider yourself forewarned now though.

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Concluding Thoughts:

In short, Warnings signs are ABUNDANT. And in the next couple articles I post I will paint a very clear picture for you to see for yourself. Stay Tuned!

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Chris Vermeulen

[Image Courtesy of Flickr]

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Hey, Im Joshua, the founder of CNA Finance. I enjoy following the trends in the market and finding the catalysts that are making the moves. If you want to get in contact with me, leave a comment below or email me at CNAFinanceHelp@gmail.com Please keep in mind that I am not an investment advisor and nor is CNA Finance. This is a news and information gathering outlet. We may work directly with some of the companies that we write about. If we have a business relationship with an issuer, we will mention that in the articles. We also have various affiliate relationships with advertisers and may be paid if you sign up for a service that you were referred to through our website.

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