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That’s the case Credit Suisse and the ECRI have been building over the last few months. The last two days have provided much needed relief to the bulls who were worried that their mid-cycle slowdown thesis was about to turn into an end-cycle nightmare.  Credit Suisse maintains that global PMI’s are consistent with 3.5% and are a leading indicator of growth.

They also say the global economy is recovering nicely and that investors should be careful about confusing a US slowdown with a global slowdown.   Nonetheless, they still make the case for ISM slowing as opposed to crashing:

“as our economists point out, the normal business cycle in the US follows this sort of pattern; in other words, so far the mid-cycle slowdown does not look abnormal. We believe that there is a clear danger that investors could over-extrapolate US trends to global GDP.”

I am not swayed immediately by these reports as so many investors appear to be.  I think the best way to think about the economy is to think about it as if it is an enormous battleship.  It doesn’t turn on a dime although traders prefer to think it does.  Rather, slowdowns occur over the course of many months and don’t materialize into full blown recessions until everyone has recognized it.

There are very serious macro headwinds at work here.   First and foremost is the end of government stimulus.  By now, I think it’s abundantly clear that the “recovery” in economic growth has been largely due to government aid.  We’re only just beginning to see the stimulus wear off and turn into a net negative.  By this time in Q2 2011 my guess is Congress will be very seriously considering a second stimulus package as economic growth softens.

Other headwinds include the end of the inventory restocking cycle, the increasing likelihood of a housing double dip, the de-leveraging consumer, austerity at the state and local level, very bullish analyst estimates and the likelihood of slow hiring as companies err on the side of caution.

Recessions always begin as slowdowns.  The jury is still very much out as to whether or not this is merely a slowdown or a full retrenchment.

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