If you’ve been reading me the past couple years, you know I believe that the slow growth in the global economy is essentially a permanent circumstance. The short thesis is that aging demographics and massive accumulated global debt simply can not be overcome with easy money. The best we can hope for is slow growth, a smoothing of market forces and a preservation of standard of living. The worst we can expect is the type of depression, social unrest and war that many doom and gloom sellers rant on about.
Today’s U.S. employment numbers demonstrate that growth, even on island America, is not likely to accelerate anytime soon past the 1-2% we’ve been seeing lately. While there is some seasonality to this month’s number as employers wait for May graduates to hit the job market, it is more likely a harbinger of what I called a “skip straight recession” last winter.
U.S. employment numbers were not the only thing to look sluggish this week. Nations around the world reported slower growth than wished for.
Jeffrey Gundlach pointed out (make sure to watch that inteview) the deflationary problem nations are facing today. He followed up with talking about helicopter money and fiscal spending to bring back some growth and inflation. Those are the exact same ideas I talked about on MarketWatch in March.
I’m not going to go on an on about the problems around the world, but I encourage you to Google “slow growth economy” and click the news tab. You’ll see dozens of headlines including one from the IMF which outlines well what is going on around the globe.
We clearly have to worry about China’s slowing growth and the very real possibility of more disruptions in Europe this summer. It is not far fetched that we see both Brexit and Brexit this year. If either happen, expect major market dislocations.
Someday Japan is going to fall out of bed and emerging markets are struggling with aging demographics already. Many of the nations that once relied on oil exports are also in trouble. It’s a long list as I described a few posts ago.
Right now the markets are operating within a narrow range again. That means we will likely soon see a break-out or a breakdown. Last year we saw similar patterns emerge. This year I think the consequences will be similar.
Given the market structure of boomers withdrawing money reducing the demand for stocks and buybacks being the only real source of new demand for stocks, it is becoming increasingly likely we see a correction. The possibility of another flash crash is very real as once traders sell and shorts pile on, there is nothing to catch the market for hundreds of points to the downside on the S&P 500.
I am remaining cautious and have a small short as a hedge. I know what I want to own coming out of a correction, i.e. our “Very Short List” and ETF list available to subscribers. I am waiting patiently for an S&P 500 in the 1600s, I think it is extremely likely to happen this year.