While you were out drinking and indulging over the holidays…I was (mostly) working.

My travels took to me to London, Paris, St. Moritz and Venice, all of which are terrific in their own way. Jumping from city to city I conducted 11 interviews with people who manage money.

Most of those interviewed are clients of CoreData, people whom we have known in some cases for more than a decade, some of them we were referred to as ‘worth talking to’ and in two cases people were referred to me to get to know.

We discussed a lot of things – but the framework for the conversation was always much the same: What do you think of the year ahead?

The reasons for this are very straightforward – the past three years in financial services have been good as low cost money washed through the system, China and near-China economies have been pushing through industrial growth and political stability has been reasonable.

But there are hidden problems in this, as there always is. One of the big hidden problems is that without China – there hasn’t really been any growth to speak of. There has been cost cutting, wages reform, better supply chain management but no real and fundamental growth.

Things are clearly off the boil in China. I travelled there in September last year and for the first time felt the grind of an economy that was getting into the rhythms of normal operation – not just helter skelter growth.

It’s hard to see in the main economy because as with most things coming from centrally controlled economies, the data is opaque – but for companies that report overseas the data is pretty visible.

One view is through the auto industry – growth there in the past year was 0.3% – effectively zero despite destocking and discounting – Tiffany’s and Hugo Boss at the luxury end are still going well – but announced that they would sizably reduce their planned store opening program.

The forward looking data here is grim too. Four times a year we poll Australia’s rich (people with more than $1 million invested in the market) and ask them about 150 questions on what they are going to do in the next month and how confident they are feeling.

In general they are feeling more confident – mainly because they think Turnbull
is a better leader than Abbot, but there is another question buried in the survey – which looks at how much new money they will be investing in growth assets (shares, both local and overseas, businesses etc) and how much they will be investing defensive assets (bonds, cash etc).

In December Australia’s rich were retreating fast from growth assets, shifting their money to bonds and cash and all new earned money was going into cash and cash like products. These numbers – which don’t reflect confidence – but intention – were the weakest we have seen for seven years.

But back to the lap of Europe I took at Christmas time.

The data is grim. All of the people I spoke to expect 2016 to be tough and all of them expect 2017 to be worse. There was a lot of talk about a post GFC correction and there was for the first time real fear.

The English talked of over valuations, of asset sales and looking to near Asia for 201602-Working-Holiday-(2)growth because it was invisible in Britain. Even the Russians, they said, are withdrawing from the market.

The French spoke of a world without confidence because of political instability and employment uncertainty, the Italians too were without confidence – there whole banks have evaporated – taking with them the bond holders money, which means that the investors largely want to do nothing.

Only the Germans were prosaic. The weak Euro they think favors them as they are an exporting nation – the threat to them is how well they handle the new immigrants.

They spoke about the need to do a better job than they did in the 1970’s when they imported labor from around the Bosphorus, they spoke about how to manage the waves of people and how to manage an economy facing lower growth – at least for the next five years.

The common theme for all of the managers was the strength of the American economy. They acknowledged that the American economy – if it keeps growing could replace the Chinese economy as the engine of the world.

There is a kind of fear in the market too that there are few engines of growth left. In the Western World interest rates are low – investment policies are lax and Governments everywhere have their policies set to growth – yet interest rates are still falling or very soft.

Except in America – America alone has raised rates in recognition of high utilization and fast moving asset growth.

We all agreed that the next important set of numbers will be the American Christmas retail numbers – because in effect they represent the confidence of the American people.

On Friday that data came out. Its not great news. In December the month when Americans are supposed to push out the boat for Christmas spending, retail sales fell 0.1%. If you take out petrol building materials and car sales from that number, the fall moves to 0.3%.

Inflation it seems may be off the boil –removing the firepower from the Fed to increase rates and bringing some strength to the argument that real recovery is going to be longer and slower than we have all expected.

Tighten your belts ladies and gentlemen, the next two laps of the sun might be – economically at least – a little bumpy.

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