7 Global Goats That Could Bring Market Mayhem
Meet the goat.
For as long as the bulls and bears have see-sawed back and forth in the zoo that is Wall Street, one stubborn animal sat on the fulcrum, ready to tip the balance in the bear's favor: the goat. When global forces show ornery, goat-like tendencies, markets in the U.S. get the willies. How or whether these seven goats will impact Wall Street remains to be seen. But each has the potential to turn 2016 or 2017 into the Year of the Goat. Never mind that in the Chinese zodiac, that symbolizes prosperity. Wall Street has always been an upside down place. And speaking of China ...
Chinese economic slowdown.
Like a fat-goat, 2-ton gorilla hybrid, China upsets U.S. markets with a single hiccup, as shown by Wall Street's "flash crash" last August. China's GDP weighs $10.3 trillion -- second to the U.S. at $17 trillion -- and represents about 17 percent of the world's economy. "China has a difficult balancing act," says Dan Kern, chief investment strategist for TFC Financial Management in Boston. "It's trying to stabilize growth while addressing structural problems such as poor credit allocation, an overleveraged corporate sector and 'zombie' companies that need to be restructured."
Japanese recession.
Optimists point to first quarter 2016 statistics that showed growth at 1.7 percent, well beyond the forecast 0.2 percent. Yet the world's third-largest economy has battled two recent recessions: one in 2014 and another short burst in November 2015. Then there's the nation's sales tax vexation. In 2014, it rose from 5 to 8 percent -- which triggered, yes, a recession -- and a jump to 10 percent was approved in October. But last month, Prime Minister Shinzo Abe delayed that second increase until October 2019.
Russian hackers.
The Corkow Trojan is not the latest John le Carre novel -- because it's true. Digital rogues unleashed the virus in February 2015 to attack Russia-based Energobank. The result: The ruble-dollar exchange rate shifted more than 15 percent in minutes. Though the hackers didn't cash in, their action indicates how cybersecurity remains a big issue. Corkow has wormed its way into more than 100 financial institutions and since it evades detection by constantly changing, no one knows whether the Russian hackers have grander schemes in mind.
The Brexit.
The most recent goat to invade Wall Street came clad in a Union Jack. One tycoon, Sir Richard Branson, is so worried he's calling for another exit referendum. Next up? Maybe a Scexit from the Brexit. Leaders in Scotland -- set against leaving the EU -- are mulling another independence vote. At the very least, "The instability from further job losses in Britain and the EU could risk the already fragile economies across southern Europe," says Bryan Slovon, founder and CEO of Stuart Financial Group in the Washington D.C. area.
A Grexit.
If all these EU portmanteaus are annoying, consider how EU leaders will feel if Greece makes a run for it. Its debt remains a sickening 175 percent of its GDP -- and constant scolding from Germany hasn't helped. Germany opposed another bailout of $8.3 billion last month, but the dough won't plug the leak. Greece's economy has shrunk by a quarter over the last eight years. Greek bonds speculators have already taken a hit, and a Grexit could prove the last domino before a rupture of the EU.
Italian economy.
Italy isn't at the same crisis stage as Greece, but signs aren't good for the world's eighth-largest economy. Bad bank debt and dubious balance sheets indicate a potential financial crisis. Meanwhile, Italy's staggering debt-GDP ratio of 132.7 percent is a record high. While eyewear giant Luxottica (ticker: LUX) and Fiat Chrysler (FCAU) are international, "They will remain highly correlated to the Italian equity market," says Tom Manning, CEO of F.L.Putnam Investment Management Co. One sort-of bright spot: Unemployment, while high, is down from January's 11.7 percent to 11.5 percent.
Terrorism in Iraq and Syria.
The Economist Intelligence Unit, in assessing the largest threats to world financial stability, places the "the rising threat of jihadi terrorism" at No. 6, and cites Iraq and Syria as hotbeds for Islamic State activity. The report's forecast is not for investors who are faint of heart: If terrorism escalates, "it would no doubt begin to dent consumer and business confidence, which in turn could threaten to end the five-year bull run on the U.S. and European stock markets."
A former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo writes about investment for U.S. News & World Report, and personal finance for Money Under 30 and GOBankingRates. He is based in Chicago. Connect with him at linkedin.com/in/loucarlozo.
