As 2023 sets here are some big and bold predictions for 2024.
First, an Emerging Real Estate Digest status report for the readers:
In 2023, we went from 0 to 5,000+ email subscribers. Tiny number in the end, but it's the quality of the readers that impresses me so. We have at least a couple of billionaires, many prominent investors and executives, and a good number of aspiring analysts wanting to see what their bosses are reading.
Mega thanks to all the followers and readers of the Emerging Real Estate Digest. It means a lot more than you think when you give your attention to the noble causes we're pushing into the universe together.
2024 will be a bumpy one for emerging economies and here’s how you should handle the ups and downs? 👇
1. The Fed Will Raise Rates Dramatically After Cuts Fail
The Fed is under pressure to cut rates. The government will struggle to pay 5% on $33 trillion, and debt repricings are rapidly approaching for large private entities that need rates lowered to survive. The other Western democracies, as well as most emerging economies, can’t lower aggressively until the Americans begin as we have previously explained.
Unfortunately, the cuts will not have the desired effect. Lower rates will lead to a release of pent-up borrowing demand resulting in an avalanche of sovereign, corporate, and personal borrowings. The increased money supply will stun the Fed, and occur in the context of a recessionary economic environment. Only double-digit interest rates will tame the beast.
Mark Twain once remarked, “History doesn’t repeat, but it often rhymes.” In 1974/75 the FED believed it had beaten inflation which had topped out just above 12%. Rates were cut and inflation dropped below 5% only to rise above 13% again by 1979. Inflation was only tamed in the end with double-digit interest rates, topping out at 18%, and new oil field discoveries which lowered energy input costs.
2. China’s Economic Challenges Cascade
China’s assent has always been a heavily subsidized affair and not based on fundamentals. Ghost cities were created out of thin air to inflate GDP growth data to demonstrate consistently high growth to attract the attention of multinational companies and financial institutions. The debt issuance and construction activities are often double-counted when calculating the GDP. This is just one example of how the CCP manipulates economic data.
China’s real estate bubble bursting was a big story in 2023. The 2024 industrial bubble bursting will be bigger.
3. Tumult in the Seas Worsens and Japan Emerges
The Houthis aren’t rebels, they run Yemen. The West, along with Saudi Arabia, has battled the Houthis for nearly a decade and they are still standing. Yemen has essentially blockaded Saudi Arabia by exchanging drones worth thousands for missiles costing millions. China is harmed because it wants to push goods through the canal quickly and cheaply. Europe is harmed because Asian goods going around Africa pay 8% more freight fees going to America, but 20% if going to Europe.
North Korea’s “little rocket man” is preparing for his 2024 cameo. Lifting the illusion that the seas are safe emboldens bad actors to do what they do best, act “badly”.
India is threatened by China’s Belt and Road Initiative running through its “backyard”. All oil shipments from the Middle East pass by India, and blocking these vessels is well within India’s capacity. Once past India, the oil shipments then pass through the narrow Strait of Malacca, and then through the contested South China Sea past more rivals including the Philippines and Japan. Quite a gauntlet.
Japan already has a powerful navy and plans to spend a record-breaking $56 billion in 2024 to bolster its war capacity. In 2024, Japan will hold hands with the Philippines and assert itself as the new shipping lane enforcer in the South China Sea and region. China will have no supporters and will eventually accept Japan’s role and dominion.
Piracy will be commonplace in 2024. Pirates are funded by governments seeking to frustrate competitors, while others are motivated to action by the free booty.
4. ESG “Investing” Ends with Major Fraud Judgement(s)
Tennesse is suing Blackrock for fraud over how it sold investors on its ESG funds. The CIO of the $43.2 billion Utah Retirement Systems has called ESG “now completely politicized” and “a waste of time”. The curtain is falling on ESG, and more will begin to see the powerful financial incentives that animate ESG. It’s a tool used by banks and brokers to sell more financial products, and by governments to exercise control.
5. Colombia Cracks
Of all emerging markets followed by Emerging Real Estate Digest, Colombia in 2024 has me the most concerned. The country is suffering economically and is one of the few countries in Latin America that has not yet tamed inflation. Colombia’s central bank admits domestic inflation is at least 10%, with some observers suggesting the figure to be 4x to 5x too small. Regional peers have rates of inflation contained under 5% and they have already cut interest rates a handful of times in 2023.
Colombia’s problems are multifaceted:
high inflation well above targets,
high interest rates that can’t be lowered substantially without risking stagflation,
Colombia is not a complex economy and its main exports are cocaine and oil, in that order. It relies on imports priced in dollars and has a weak domestic manufacturing base. There is no escape if stagflation takes hold, and Petro isn’t the George Washingtonesque figure to rally his country to victory.
For what it’s worth, my view of Colombia is that it will emerge as a primary player in South America starting in 2025 and be a chief ally for America in integrating the Americas into a formidable regional trading bloc. I’m very bullish on Colombia in the long run, but next year it will crack.
BLACK SWAN BONUS:
[don’t judge, we’re having fun here!]
fake alien invasion orchestrated to “save” the old global order and unite nations around a shared fictitious enemy 👽,
cutting of internet cables which shuts down many societies for a period,
regional independence movements gain serious steam in either South Africa, Brazil or Nigeria, and/or
an American aircraft carrier is sunk in the Red Sea conflict, and Japan takes down either a Chinese aircraft carrier or one of its militarized islands.