• Clifford Bennett , Chief Economist at ACY


• 13.10.2021 10:30 am
#stock

Global Economic Weakening.

We see it clearly in the US data. Job Openings now rolling over, chart above, and a host of other south pointing data released just in the one day.

In Europe, we are seeing economic sentiment and confidence pluming one and a half year lows.

Remember, when the World Bank and IMF came out with their big increases in GDP forecasts?

I said at the time, they had it wrong, and would have to revise those forecasts lower. That happened today, with the IMF downgrading its forecasts for China, USA and the world. Only stubbornly and marginally so far, but there is no doubt the big institutions got it badly wrong this year. Further downward revisions are to come as part of the inevitable forecast to reality convergence, that always happens.

Also, remember how all year I have been calling it the second great housing bubble of the century to depict what has been happening in the USA. Today, CoreLogic came out with an assessment that there now over 1 million mortgages in distress and behind on payments.

The United States of America is at risk of a simultaneous stock and property market correction. This is not a big call. It is a patently obvious very real and immediate risk. Underline the word 'immediate'.

US Small Business Sentiment

Faltering and at a six month low.

US Consumer Inflation Expectations continue to rise.

European Zew Economic Sentiment Index

This is now at a one and a half year low. That is how bad it is. This is not a strong economy environment by any stretch of the imagination.

Around the world, inflation will continue to build.

I think we were the first to call a tsunami of inflation that would be long lasting. The reason other economists, investment banks, and central banks are not getting it right, is that they do not understand the real world economics at play. Buried in their text books, they are incapable of 'looking out the window' to understand the pandemic created massive profitability opportunities due to the 'freedom of pricing' afforded. This has been the driver of both strong earnings and inflation, at the same time.

They are driven by the same force. Real supply chain disruption and opportunity re-pricing. This was always going to be a permanent phenomenon, and never at all transitory.

Around the world, central banks will increasingly respond to out of control inflation by winding back on stimulus, just as economies slow as a hangover effect from the previous grand stimulus ventures.

This is a slowing growth and rising inflation economic fixture, that we are all already in the grip of. It is called 'stagflation' and it is an economic killer.

This is happening the world over at the same time, and should be alarming to any economist or investor.

The big institutions are so far behind the curve on understanding these basic economic forces, that they have continued buying assets and will now end up extremely exposed. It is the rate of un-winding of these massive exposures that will dangerously impact markets as we move forward.

We must approach the foreseeable future with considerable caution. Appropriate hedging and defense strategies now, may well empower your long term investing future to the degree of a quantum leap.