Here We Go Again Already?

What is it about the economic recovery so far that allows good news to last for only six months at a time before fears rise again and the economy needs another adrenaline fix from the Fed? The pattern has been clearly reflected in the stock market, which saw its historical pattern of making its gains in the winter months and suffering corrections in the summer months even more pronounced in 2010 and 2011.

And here we go again already?

Just when it seemed we could relax, the U.S. economic recovery surprising with its strength, the Greek debt crisis kicked into the bushes, and most global stock markets in impressive six-month rallies, here comes another set of dark clouds and rumbles of thunder.

Global economic reports were unsettling from all directions this week.

The closely watched 17-nation eurozone PMI index, which measures both manufacturing and service sector strength, dropped to 48.7 in March. That was the eurozone PMI’s third straight monthly reading beneath 50, which is the dividing line between expansion and recessionary contraction, indicating Europe is sinking deeper into recession..

The similar HSBC PMI index for China, the world’s second largest economy, shocked markets, coming in at 48.1, its fifth straight monthly reading beneath 50.

Worries also rose in the Latin America region on warnings from the World Bank that “more than other regions, commodity exporting countries in Latin America [like Brazil and Argentina] would be vulnerable to any decline in commodity prices that might accompany a credit event in Europe.”

At the same time, a research report on Latin America from JP Morgan noted the importance of China, a major buyer of commodities and raw materials from the region, saying, “China’s influence in driving Latin America’s growth has increased sharply since 2008, so whatever happens in China’s economy matters for Latin America even more.”

Asia, Europe, Latin America. They’re so far away. Should U.S. investors care?

Absolutely. Global economies have always tended to move in tandem, into and out of good times and bad times pretty much simultaneously. That tendency has become more pronounced over the last 20 years as countries around the world have become even more dependent on exporting their raw materials and manufactured goods to each other.

So, if other major global economies are experiencing slowing economic growth, some even sliding back into recessions, how reasonable is it to expect the U.S. to escape a similar fate?

Already we may be seeing early warning signs in this week’s U.S. economic reports.

Economists were looking for reports from the U.S. housing industry, the first since a month ago, to confirm the economic recovery is spreading into that important sector.

Unfortunately, the reports were disappointing. They were that new housing starts unexpectedly fell 1.1% last month, existing home sales fell 0.9%, the inventory of unsold homes jumped 4.3%, and new home sales fell 1.6% (compared to the consensus forecast that they would rise 3.8%).

The U.S. stock market stumbled some in reaction to the arrival of global dark clouds, while elsewhere, markets in France and Hong Kong plunged more than 3% for the week, markets in Brazil, China, and Germany more than 2%.

Meanwhile, areas often perceived as safe havens, gold and U.S. treasury bonds, which had fallen to multi-week lows, bounced back some as money flowed back into them.

One week is not a reason for concern.

But this week’s darkening economic clouds just as another six-month cycle from last October’s low rolls around, and with 1st quarter earnings reports just two weeks away, are reasons for investors to remain cautious and alert.

Community Talk

Re: Here We Go Again Already?

This may at first glance appear as a simple answer to your query as to WHY market sentiment cycles on and off over 6 months periods, but we need to consider the fundamentals and filter out the "noise" that is generated by the government and the FED, and bankers in general through the media largely controlled by the powers that be.

The primary reason our economies have been stablilized and fundamentals have not really made any major improvements is because we have an unsound and ultimately unsustainable monetary system based on DEBT!  How can an economy become sound when money is created out of thin air, or perhaps I should say backed by nothing but the hot air of politicians who spend like drunken sailors on shore leave, and that is being kind to sailors. When .40c of every dollar the government spends is borrowed, (creating more debt) and governments already in unpayable debt situations are bailed out (Greece) so they can meet their interest payements and prevent a total meltdown of the system, HOW is any confidence and sound future planning possible?

Without SAVINGS there can be no sound accumulation of capital for growth and expansion that would create needed jobs, but where is the incentive to save when interest rates are below the level of acknowledged inflation let alone the REAL inflation hidden from the masses?

Talk about being between "a rock and a hard place" raising interest rates to a level that would make savings attractive would make current debt levels unpayable, but why should that be a surprise? When our currency supply (I won't dignify our present fiat system by calling it money when our paper I.O.U.s are effectively COUNTERFEIT) is dependent on people going into DEBT to borrow it into existence, since only the principal is ever created, the interest CAN only accumulate as a pyramid of debt that must in time collapse of its own weight on the economy.

Gold and silver may well be one of the few ways to preserve purchasing power in the present environment of crony capitalism where bad actors get bailed out and prudent working people and savers have their life's work STOLEN by white collar criminals.