Busy morning! Equities are getting hammered today as fears of a global slow-down worry investors. There have been small signs of weakness in the economy in recent weaks – consumer spending trends and China’s recent PMI are notable standouts. The excessively bullish sentiment combined with the crisis in the Middle East to create an environment ripe for instability. Will it persist? It’s unlikely that anyone knows, however, a slow-down in China and surging oil prices would certainly put a dent in the global recovery. Prior to 2011 these were two of my great fears in 2011 and both appear to be gaining some traction….I still believe China is the glue that binds this all together so any signs of weakness in their economy are most worrisome. The recent frightening signs of a commodity bubble only compound the situation.
We’re living thru a truly unique period with a balance sheet recession in USA and Europe and inflationary bubbles sprouting up in Asia. “Instability” might be an understatement when describing the precariousness of the global recovery. For now, it looks like a large USA budget deficit, a proactive ECB and a “money printing” PBoC have pieced some form of recovery together, but a misstep by any of the big three central banks (has China already misstepped and triggered a commodity bubble that is to be followed by a bubble collapse?) could cause a ripple effect throughout the entire world. Ironically, it’s the region of the world without a dominant central bank that appears to be bearing the brunt of the costs of papering over economic problems. The PBoC’s “money printing” has combined with the Fed’s message to “go out and speculate my friends!” to generate a disastrous situation in the Middle East.
Enough macro. Let’s take a look at what’s happening today:
- Brent oil is jumping again today to $115. These sustained prices are having an obvious drag on consumer sentiment and spending. It’s hard to go anywhere these days without running into someone who is thinking about rising gasoline prices. I can only imagine what the Europeans must be thinking as they pay $8.50 per gallon….US gas prices are becoming a common joke in Norway where prices are $13+….
- Protests are spreading to Saudi Arabia….This is a bit of s side note and likely above my pay grade, but I can’t express how disappointed I am with President Obama’s response to the MENA crisis. Like most things he has done over the last few years he is talking a big game and doing little to back it up. I am not an advocate of physical force in Libya (we are already overextended in Iraq and Afghanistan), but as the leader of the free world I am shocked that the President is not calling a U.N. meeting or at least attempting to create a stage for an adult discussion. It’s clear that Gaddafi is not an adult and cannot be expected to make mature decisions. This man is slaughtering his own citizens and the world is just sitting by idly. I think it’s embarrassing that the President has not taken this situation by the reigns and at least pushed the global discussion in a more productive direction. A show of global unity from outside of Libya would send a powerful message to this maniac. I am not an advocate of the American policy of policing the world, but President Obama has the power to spark a productive debate and generate a message that Gaddafi is clearly not getting….These are times when great leaders make a stand. It’s pretty clear that leader is not present in the global community – in the USA or elsewhere.
- Jobless claims surged to 397,000. It’s likely an anomaly as the holiday weeks tend to cause spikes in claims, however, the near 400K level this deep into a recovery is a sign of just how fragile the economy remains….Tepid job gains going forward are likely.
- The news of the day is the Chinese trade deficit. China reported a widening deficit of $7.3 billion for February which is consistent with slower US economic growth. This has global markets fearful of a persistent negative trend in global growth. As previously mentioned, China is the glue that binds….Weakness in the region should not be viewed with complacency.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.