Economic risks intensifying

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ifo index Jan2019Dear Readers,

The ifo business climate continued to decline significantly in January. In the German executive floors, the Munich conuncture researchers write, the restlessness is growing.

In fact, all components of the ifo business climate declined. The collapse of expectations for the coming six months was particularly drastic in the retail and manufacturing sectors. As you know, we are monitoring the data from the export-oriented industry very closely because they allow conclusions to be drawn about the strength of the global economy. The current results - the industry is now as pessimistic as it was during the euro crisis in 2012 - give an idea of increased economic risks.

This assessment is supported by the ifo business clock and the ifo traffic light (graphics). According to the economic clock, the German economy is in a downturn again for the first time since 2012. And the red traffic light indicates further contraction.

A clever member of our network once said: "Every recession begins with a downturn".

A look into the past shows what effects this could have. In each of the last three recessions - 1993, 2001/2002 and 2008/2009 - the earnings of DAX companies fell by around 50 percent. That doesn't have to happen again. But as long as business expectations do not improve, we must assume that the economy will continue to deteriorate.

Conclusion:

The private-wealth stock market indicator has been out of the stock market since the end of February 2018. This was triggered by the three-fold decline in ifo business expectations in the industry and the simultaneous very high valuation of the stock markets. Since then, the indicator has proposed a minimum weighting of equities of 0 - 30 percent of the individually planned equity component.

For the short-term positioning within this corridor we use the results of the capital market seismograph. As the latter estimates the probability of a bear market to be very high and even suggests a zero equity quota, the private-wealth stock market indicator remains on the sidelines.

yours

Klaus Meitinger

Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided in private wealth is for information purposes only and does not constitute an invitation to buy or sell securities.

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