The global economy is in good shape. If you read the German media, however, you might think that we are on the brink of economic Armageddon. The truth is that Europe, as well as Australia, Japan and Canada (the ‘majors’), are in a difficult situation.
The sovereign debt crisis in Europe led to a shortage of investment. This forced companies, particularly in Southern Europe, to reduce their borrowing in order to ease the strain on bank balance sheets. Meanwhile, in the U.S., credit was flowing freely. It is therefore not surprising that investment levels declined and that less capital was available for ambitious projects.
Nearly 30 years after its debt crisis, Asia experienced a new beginning in the 2010s, the fruits of which Asian nations are now reaping in the 2020s. It is therefore not surprising that Japan, South Korea and the ASEAN nations, together with China, are now enjoying a sustained economic boom. Over the past 15 years, many Asian companies have made significant technological strides, leaving the major economies astonished because they are no longer the sole producers of highly specialised machinery and automobiles.
We Need to Invest More
I’m not talking about countries that already take themselves far too seriously. In order to remain competitive, the conditions for businesses must be dramatically improved in terms of tax incentives for investment and, above all, by reducing regulatory burdens. At both the national and supranational levels, it is clear that we must significantly reduce bureaucracy (and the number of civil servants) if we are to remain competitive in the long term.
While I see some movement towards recognition here, I don’t see any insight or the beginnings of a plan for how this could be implemented in practice. As long as this remains unclear, I don’t think Europe will be able to attract capital or stop the outflow.
There Are Clear Signs of a Bubble in the US Capital Market
SpaceX’s initial public offering last week illustrated this subheading perfectly. Despite posting cumulative losses, the company went public with a valuation that reached 3,000 billion USD at one point. There is no clear path to revenue that would justify this valuation. The question that baffles me most is: which companies could pay SpaceX for services that would justify this valuation? Even if half of the assumptions about the disruptive nature of AI were true, it is unlikely that the disrupted companies would have the resources to fund AI to such an extent that they would drive themselves out of the market.
The USD is currently rising against all major currencies. The SEK, NOK and CAD are particularly weak. The AUD is holding steady, as is the pound against the euro. Unless concern over Europe’s investment capacity is driving the USD higher, I can’t see any reason why it should continue to rise in the coming weeks. However, I also see no reason for the USD to depreciate immediately and sustainably, so overall, I believe the unusually low-volatility sideways trend that has been in place for 15 months will continue — a trend whose lower boundary we are currently testing.
