In this week we have been unaware witnesses of “the big switch”.
On one side we have China, which is switching from an infrastructure-based economy to a consumer-driven one.
On the orherside we have the US, which is switching from a Federal Reserve life-support economy to one that can sustain itself.
We are talking here of the World’s leading economies therefore we could easily say that the world economic scenario is switching. The big switch will take time, and certainly will not be easy. The task difficulty can be highlighted by what is happening in China where the economy has been cought in the grip of slowing growth and an increasingly tight cash squeeze, in the light of New leaders’ commitment to reform China’s economy even if that means slower growth in the short term.
Reason why is logical to expect a great number of adjustments in the weeks ahead, the important thing in my opinion is to not look back! The temptation to go back and “to bake fresh money” will be really strong and although could offer instant relief, in the long run it will exacerbate the liquidity trap the world has fallen in.
We, unaware witnesses of the big switch, need to adjust our assumptions and our investment hypothesis because the bell has rung “the big switch”.