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Home > Blogs > Anthony Harrington > Dismal news keeps the markets wobbly

Dismal news keeps the markets wobbly

Global Market Analysis | Dismal news keeps the markets wobbly Anthony Harrington

The global stock markets are nervous as kittens these days. Investors seem to cycle between bouts of mad optimism and the blackest pessimism with nothing very much acting as the trigger in either direction. What started markets tumbling this last go round seems to have been a single think tank revising its China growth forecast down slightly.

Oops. China not growing as fast? OMG! Sell! sell! sell! The S&P 500 has plunged from the 1100s to 1010 or so in little over a week. Two weeks before that the markets generally cast off the sovereign debt cobbly wobbles and climbed for eight straight days, with the S&P rising steadily from the 1040s to the 1100s we just mentioned. The sovereign debt situation didn’t change and China’s growth prospects didn’t alter overnight. What changed was investor perception of these two phenomena, and what brought about the change in perception was, well, not a lot really…

In reality, there are one or two goodish signs out there; German manufacturing has strengthened, for example. But there are also some deep structure phenomena, particularly with the US jobs market, that do not make for happy reading. John Mauldin peels back the hype [PDF, 379 KB] from around the supposed decline in US unemployment numbers, from 9.7% to 9.5% (supposedly a good thing) and shows that in reality the US is not making a dent at all in the 125,000 new jobs a month the US economy needs to generate just in order to keep pace with population growth. It goes without saying that the US is not yet remotely able to generate the 225,000 new jobs, month after month, for 3 years, that it needs to get the 8 million workers who lost their jobs through the crash, back to work—never mind finding new jobs for the 125,000 new bodies joining the work force every month.

17% of American households say that their income is decreasing and the latest US Conference Board survey shows that the number of households planning to buy a whole range of “big ticket” items, from white goods to motor cars is way down and falling.

Mauldin sums it up thus:
“Let's recap. Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.”

He finishes his piece by wondering if Ben Bernanke, chairman of the Federal Reserve, will be tempted to conclude on the back of this and similar data that the US is indeed drifting towards deflation. Will Bernanke, in the spirit of the famous Bernanke Speech of November 2002 (the one that earned him the nickname “helicopter Ben”), start aggressively reflating the economy for a second time? Japan went from a trade surplus to a deficit in excess of 200% of GDP trying, largely unsuccessfully, to beat deflation. It is anyone’s guess where the US deficit would finish up in this scenario. Perhaps the markets are right to be skittish, after all.

Further reading on global growth and global market analysis

Tags: economic recovery , financial crisis , fiscal deficit , fiscal stimulus , GDP growth , US
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