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In this analysis by Mohamed El-Erian, one of the world’s best economic minds, illustrates the importance of the strong US dollar is having in the world. The word “divergence” is being used in many corners. It is a basic gap analysis on a macro scale. El-Erian describes the world into four groups. By understanding these grouping, one can forecast possible outcomes for individual stocks. Below is a basic understanding of the groups:
- US model: Continued economic performance
- China model: Stabilized lower growth rates & mature structurally
- Europe model: Economic stagnation
- Russian model: Wild card, important systemic implications
The strong dollar will produce divergences in both domestic and international economies. US will increase interest rates in the second half of 2015 while the Europe will start a US type of monetary easing in 2015. This will place more upward pressure on the US dollar. Since the US is the only currency willing to strengthen, the upward appreciation will remain throughout 2015. This will transfer into international markets and cause friction. It will be up to the governments to address these divergence risks.
As an investor, understanding these macroeconomic effects described by a leader in the field like Mohamed El-Erian can produce an understanding to make significant investment decisions to produce profits in the long run. Happy investing!!
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
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