With global stocks maniac on yet another hit of Central Bank assurances this week, economic facts continue to speak louder than empty words. Global growth is sinking lower by the day, and no matter how much Bernanke promises that the Fed won’t “taper” stimulus too soon (whatever that means), significant tightening is happening anyway thanks to the sequester cuts, higher oil prices, higher mortgage rates, and a higher US dollar. The tangled web has been woven…UPS (United Parcel Service) the world’s largest package delivery service just missed earnings forecasts for the 2nd quarter and lowered guidance sighting a glut of overcapacity in the world freight market and particularly ” a slowing US industrial economy”.
For anyone that missed it, Louis and Charles Gave offer an excellent summary of recent trends in “Bad Omens” this week available here.
I thought the charts showing the relative performance of US stocks over bonds and the major divergence between US stocks and other global markets year to date, were particularly insightful. Concluding with some key take aways:
• China, the single biggest contributor to global growth over the past decade, slowing markedly.
• World trade now flirting with recession.
• OECD industrial production in negative territory YoY.
• Southern Europe showing renewed signs of political tensions (i.e.: Portugal, Greece, Italy…) as unemployment continues its relentless march higher and tax receipts continue to collapse.
• Short-term interest rates almost everywhere around the world that are unable to go any lower, even as real rates start to creep higher.
• Valuations on most equity markets that are nowhere near distressed (except perhaps for the BRICS?).
• A World MSCI that has now just dipped below its six month moving average.
• A diffusion index of global equity markets that is flashing dark amber.
• Margins in the US at record highs and likely to come under pressure, if only because of the rising dollar (most of the US margin expansion of the past decade has occurred thanks to foreign earnings—earnings that may now be challenging to sustain in the face of a weaker global trade growth and a stronger dollar).
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