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The Big Picture October 2016

Posted by jdavis on October 31, 2016

In The Big Picture I show what is really going on and what informs our thinking.

Look at June's to see what I showed then.

The following is a sample of what I see now: (see lots more also on Twitter @j0nathandavis)

The coming Recession

So, I say in the £ Sterling analysis that inflation is ticking up.  From literally 0%, earlier this year, to around 1% now and I can see it going to 3 or 4% before the next Recession.

As the £ falls (and it has been for years) we have to pay more for imports.  And we import the bulk of what we consume/use.

Oil stopped falling early this year and, indeed, has now nearly doubled in price.  This will be a major positive to inflation from around February 2017, after the year-on-year falls come out of the annual index.

The inflation (sic!) will be temporary.

The next Recession will put paid to it.

And remember (as I have said a 100 times) they can't slash interest rates, to help the economy. I find it amazing people, who know this, still deny the enormous ramifications.

It is not difficult to extrapolate from a debt-fuelled economy in Recession where rates cannot be slashed - as they have been every time there has been an economic problem, over the past 40-50 years.

Why might there be a US Recession next year?  Only loads of reasons but have a look at this:

The top chart is the US Unemployment rate.  The bottom chart is the S&P 500 large cap shares index.

Notice the Unemployment rate is low.  (You'd think there was a Presidential election this year...?)

The last two times the unemployment rate bottomed was right at the top of the economic cycle and the stock market peaks.

Coincidence?  You decide.  With your retirement fund.


It was recently reported that, in US$ terms, Chinese exports were down 10.0% year-on-year.  Their imports were down 1.9% y-on-y.  Hardly expansionary to the global economy.  China's biggest market is the US.

See the chart for declining growth in trade, over the last 5 years.  Indeed, Chinese trade has been FALLING since early last year.

36 years of US earnings growth

Since 1979, the top 0.1% of the population has seen its inflation-adjueted (Real) earnings rise c 340%.

The top 1% saw its earnings rise c 150%.

The bottom 90% aka the middle and lower class saw its income rise c 20%.

In nearly 4 decades.

You want to understand Why Donald Trump?  There you have it folks.


The following shows how US share of Global GDP has developed over the decades.

Seems to me the US is losing its way.


The Chinese Yuan is arguably the most important currency?  Not the most traded or used (not by a long shot).  However, China remains the world's biggest exporter by volume of goods.  If the Yuan is falling, China is making stuff, for us, cheaper.  They are exporting Deflation.

Folks, China is exporting Deflation.

Not good, in a debt-fuelled society.


You know, above, I mentioned Thatcher (and Wham!) in terms of how weak our currency was in the 1980s.  Well, largely that was the result of prior politicians' dreadful policies that she was sorting out.

So much so that, by 1986 our Current Account was positive ie we exported more than we imported to the tune of 1% of the size of our economy.  In perspective:

UK Current Account (exports over imports as a percentage of GDP)

1986 +1%

1996 0%


2016: -7%


Then you look at the last 30 years of Government Borrowings (Repayments of debt)

According to the OECD:

1986: +2.2%

1996: +1.1%

2006: -3.5%

2016: -6.1%

Dire, just dire.  Who would want to own the £ Sterling?


There is so much more which paints a pretty clear picture.   Clients obtain it, frequently.  Also, I tweet a lot.


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