Is Global Growth Slowing?

The IMF's lowering of global growth forecasts contrasts with the recent GDP report and MoneyShow's Jim Jubak thinks this may have implications for US investors.

It is not just that the 4% growth for the second quarter that the Commerce Department announced on July 30 is really, really strong; it is the context for it. Remember that just, oh, about ten days before that, the IMF—the International Monetary Fund—came out and said, “Hey, we think global economic growth is going to be slower in the second half of 2014,” and the reason for that was pointing to a slowdown in the US economy. If you are seeing 4% growth, that is not a slowdown in the US economy. Either the IMF is wrong in its forecast or this growth number is anomalous cooked as bad as the first quarter, which showed a 2.9% contraction. That is one context.

The other context is that what you are seeing in a lot of countries around the world ranging from most of the European economies on problems with Russia and the sanctions there; to China, to Japan and what you are seeing really is slower growth. What you have is this US economy growing at 4% surprisingly high. No one really expected that. The optimists were looking at 3.6% and the consensus was somewhere around 3% to 3.1%, so what you are seeing is this huge growth number in the US at a time when most of the world is looking like growth is slowing. Out of this, you are going to see assets come to the US as people try to figure out a way to profit from this growth. You are going to see a stronger dollar, all those things, and also, because the theory will be that this will push the Fed to raise rates sooner and the currency will go up as well. You are going to see the dollar going up as people anticipate higher interest rates on the dollar.

All those things mean that the US is going to be a net magnet for money, is going to be seen as one of the leading growth stories going forward, I mean, 4% is not 7.5% in China, but for an aging economy, a mature economy, like the US, 4% in the US is something like 10% in China given the way these parameters work.

This is an extraordinary growth story at a time when the world as a whole is not seeing much growth and the question really is, if this number holds up, then I think you are looking at the possibility of seeing growth in the United States drive the price of financial assets higher, even as investors start to worry about a rise in interest rates by the Fed in 2015. Again, timing is going to be the whole issue here. I think people will be trying to get the last bit of profit out of this market that they can before the Fed starts raising interest rates and that, of course, means that anytime you are trying to bet that you will be able to get out the door before everyone else, you are increasing the odds of some kind of event that means everybody is going to try to get out the door at the same time and people get crushed and trampled in the rush.

That is what we are looking at because of this growth rate in a low growth rate world.