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Tuesday, July 5, 2016

The great Recession 2.0

Those with money are opting to keep it in their pockets these days out of concern for the world’s economic and political stability, but such fear means fewer things made, fewer factories built, and fewer jobs available to the average worker.

Global investment banking activity fell by nearly a quarter in the first half of 2016 compared to a year earlier according to Thomson Reuters data released on Monday. The softness in the financial sector means suggests that the world’s markets are perilously susceptible to capsizing as post-Brexit market volatility sets in.

Global fees collected for mergers and acquisitions consulting and capital market underwriting fell 23% to $37.1 billion at the end of June, the slowest first half for fees since 2012. The collapse of new investment activity is a leading indicator showing that the world’s economy is set for a rough landing in late-2016.

Investment market activity has also been crushed by a slew of major mergers cancelled at the last second as investors began to get skittish about the safety and security of leading Western economies. The collapse is particularly disappointing in light of the fact that 2015 set a record for mergers and acquisitions.

Venture capitalists and hedge funds have decided that it is more prudent to keep their money in their pockets in a year of growing political instability with the United States putting forward a candidate being investigated by the FBI versus a raging xenophobe and Britain decapitating its financial industry in one foul swoop with the Brexit vote.

While the lead up to Brexit is faulted by Thomson Reuters economists as a reason for the faltering in investment outlays, the reality is that the market did not price in the possibility that Britain would leave as was evidenced in the two workdays following the vote where the world’s wealthiest lost over $3 trillion.

Credit to Sputnik

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