World Leaders Are Taking Investors Down a Dangerous Economic Path


Vitaliy Katsenelson Image Vitaliy Katsenelson Editor, Contrarian Edge

It’s evident that stock market performance has not been driven by the improving health of the global economy. This doesn’t look good for stocks, writes Vitaliy N. Katsenelson, CFA. He is Chief Investment Officer at Investment Management Associates.

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Conditions for investors around the world are getting worse.

Let’s start with Europe, the world’s second-largest economy. The European Union is a collection of states that are vastly different from one another. They are separated by culture, language (which impedes labor mobility, resulting in semi-permanent labor productivity disparity between countries — think Greece and Germany), economic growth rates, indebtedness and history.

European political (EU) and monetary (EMU) unions were great experiments that made a lot of sense on paper. Europe, at roughly the same size population and economy as the U.S., was at a competitive disadvantage as dozens of currencies embedded extra transaction costs in cross-border trade, and each currency on its own had little chance of competing with the U.S. dollar for reserve currency status.

There were also important noneconomic considerations. Germans were haunted by their past; they had started two world wars in the 20th century, and a united Europe was their way of lowering the risk of future European wars.


Economic and monetary union sounded like a logical marriage of all the significant powers of post–World War II Europe, but the arrangement was never really a marriage.