The Consequences of Political Folly

Focus: MARKETS

Jim Lowell Image Jim Lowell Senior Partner & Chief Investment Strategist, Adviser Investments

We’ve had it coming for a long time, and now we have to find a way through the mess the politicians have built, writes Jim Lowell of ForbesETF Advisor.

Two years ago, I said it would take until the end of 2011 to know whether the stimulus plans would cure or kill the patient. After nearly two years of market recovery, we’re now weathering what the economic and earnings fundamentals suggest are aftershocks of the worst disruption since the Great Depression.

However, with overall emotive risk levels rising—and one cornerstone of our global marketplace, the Eurozone, cracking toward a double dip—the threat of the past two years’ worth of recovery more closely resembling a period of remission yielding to a recurrence of disease can’t be blithely dismissed.

I do not think this disease is global, or even economic, so much as it is political: born of policy risks that are generations in the making.

Asia is growing to the extent that more than a dozen attempts to slow it down have yet to accomplish the task. Here, we’re a pulse above the flat line in terms of domestic growth, but borderline athletic when it comes to corporate earnings’ ability to jump above the Eurozone’s difficult bar.

Still, healthy and recovering economies like Asia’s and ours are prone to contagion. And the real risk, as I see it, is one of contagion.

This means having to pay close attention to what Germany (in particular) and France can manage, even as I’ll be scrutinizing Italy and Spain (the Eurozone’s 3rd and 4th largest economies) for signs of healing or worsening.

To my eyes, the economies of Germany and France look extremely weak; there’s not enough core growth to stave off at least the increased probability of a double dip.