Currently around the world we are seeing the threat of looming taxation and wholesale wealth confiscation. Here are some recent events which paint a stark picture of the rising dissatisfaction amongst local populations:
- Wholesale unrest in Brazil over Rousseff, potentially leading to impeachment.
- Right-wing protests in Brussels over terrorist activity.
- Demonstrations in Iceland leading to the resignation of their Prime Minister.
- Voters in the US on both sides of the political spectrum voting for the anti-establishment candidates.
- Puerta Rico bonds falling in value after a moratorium on debt payments.
- Riots in Naples over Italian bank instability.
- Millionaire exodus from Paris as terror risk and tax risk looms.
- Terrabytes of information on tax avoidance released in Panama Papers.
General market trends..
Meanwhile in places like London, Vancouver, Sydney, and other cities with luxury markets around the world capital outflows from emerging markets have driven the price of housing to breaking point, leading to a rentier economy for many young people who are not buying (although this trend is likely to be over soon.)
The Japanese Yen has significantly strengthened against the US Dollar and the government seems to be rapidly running out of policy options to tackle their enormous sovereign debt. Indeed, after a period of significant strengthening the US Dollar has retreated, though the trend may continue before too long.
European equities, specifically bank stocks, have taken a hit on account of the rising risks in the single currency zone.
Furthermore, crude oil has fallen once again as Iran harpooned any hopes for restriction of the supply. As well as decently performing precious metals (especially gold.)
In Europe we have the UK referendum on exiting the European Union which is a major risk factor given its potential for either sparking a punitive trade war between Europe and the UK (and perhaps even the wider Anglosphere) should the vote to leave come out on top. As this vote approaches on June 23 2016, there will be no easy solution with general mistrust of politicians running high amongst the population. Even in the event that the UK does vote to remain in the European Union, potential for dissent in the UK will be high. This is a polarizing issue for the average European citizen, and it extends beyond the UK borders and into continental Europe.
People all over the world are becoming polarized along political and economic divides.
Where to from here?
As Sovereign Debt becomes increasingly unsound, volatility will increase, the lack of debt will restrict a large part of the liquidity into the financial markets. Wild swings will be seen in the prices of many things, especially markets which are highly levered. Some markets, like housing, if funded by mortgages, may see significant declines in their real value as the flow of new entries into the markets thins.
Currencies can be expected to become increasingly volatile too, as well as equities.
With respect to property rights and political risk: this should be considered a serious potential risk from the perspective of market participants- particularly when taking ownership of foreign held assets (like property). The political environment right now is simply not conducive to stable investment.
In addition, if stock buybacks decline, we may see the equities market decline in the short term as a result of the diminished inflated demand. Having said that, companies on solid financial footing with access to strong cash flows may be the only bright spot on the investment horizon going forward. That is, if anyone is allowed to keep their capital gains.