This is the second of a three-part series reporting on Wall Street financial analyst Charles K. Ortel’s analysis of the strategies for obtaining investment returns given the likelihood of continued U.S. economic weakness in 2012 and beyond, should Barack Obama win re-election in November. Part one showed how debt has undermined stocks
Charles Ortel is a managing partner with Newport Value Partners, LLC in New York City. Newport, established in 2007, provides value-added research to executives and investment firms.
An analysis by highly regarded Wall Street financial analyst Charles K. Ortel predicts weak economic growth and disappointing private investment returns in the U.S. economy during 2012 and for the foreseeable future.
What is startling about Ortel’s economic analysis is the rapidity with which his dire economic and political forecasts are being realized on the front pages of newspapers worldwide.
On Jan. 13 the credit rating agency Standard & Poor’s downgraded nine eurozone countries, including France and Austria, with the Financial Times in London reporting in words Ortel himself could have crafted that the downgrade “reignited fears about the fiscal sustainability of the eurozone.”
Coming economic violence
“With no existing government or financial institution solvent enough, respected enough or feared enough to lead the required re-balancing in peace, we believe the world will experience a painful re-calibration of economic strength and geo-political standing during 2012 in the midst of widespread civil insurrection and cross-border war,” writes Ortel, a managing partner with Newport Value Partners, LLC in New York City
He further predicts that “the governing pole of political discourse” will shift from the traditional “left-right” divide to a new contrast between the “young” and the “old” in developed nations. He points out that a proportionately smaller number of young workers stressed both with sizeable debt from educational expenses and diminished job opportunities are forced to support a growing pool of seniors with extensive retirement benefits.
“The transformation of a contented and silent Majority into an irascible and vocal Majority will break many conventions in the United States and in other developed nations as incontrovertible evidence piles up weekly and perhaps daily over coming months that the status quo is broken for young and for old, as well as for workers and investors alike,” he warns.
Ortel foresees that civil unrest will intensify in the United States and in other developed nations that have been following ineffective, re-distributive economic paths for decades, including the creation of elaborate European-style social welfare programs providing extensive government-funded benefits to a wide range of increasingly dependent constituencies.
“In our view, the stage has already been set for continuation of protests that first began to surge in 2010,” he writes. “Some will manage to contain their activities to peaceful protests. However, we believe the far more likely scenario is that violence will result, especially in the United States where the wider population has more ready access to weaponry and where mobs have proven impossible to restrain.
Economic concerns ahead in 2012
Ortel believes the macro-economic and geo-political situation at the start of 2012 is actually more stressed than it was in August 2008, when the current global economic downturn began.
The figure below graphically presents the specific threats Ortel has identified:
Specifically, Ortel identifies the following financial challenges to investors:
- Governments could be forced, on short notice, to inject $2 trillion to $3 trillion or more just to stabilize selected large financial institutions in the developed world during 2012.
- Investors will then grow to question the soundness of the largest central banks that constitute the core foundation for the global financial system.
- The United States will forfeit its accepted right to issue dollars for use as the world’s reserve currency.
- The euro project has failed – a three-tier euro structure is inevitable.
- The Chinese economic miracle has arguably run its course – correcting natural excesses will retard and further disrupt global economic growth for more than a few years.
- Before November 2012, the market will appreciate that the U.S. election will not produce a “clear winner” in the contest between re-distributive government and responsible free enterprise.
Key protagonists in the United States will not get realistic soon enough about the gravity of the debt crisis.
Nor does Ortel believe the U.S. political system has the will or the ability to reduce U.S. debt to levels enjoyed in previous presidential administrations.
Since 1974, total government debt in the U.S. has risen from a low of 37.8 percent of G.D.P. to 80.5 percent in 2010 – a level that remains well under the peak of 118.4 percent reached in 1945 at the conclusion of World War II.
“The mammoth debt reduction (more than $15 trillion) and/or private labor income gain (more than $2.5 trillion) required to bring the U.S. debt ratio into line with levels experienced during the Clinton administration seem almost beyond ready comprehension,” Ortel concludes.
“The gaps between present reality and either the Reagan/Bush I era or the Carter period are even more terrifying.”