Headline Risk Says What? 38 of 43 Global Economies Are Slowing

09/25/2018 12:33 pm EST


Landon Whaley

Editor, Gravitational Edge

Headline risks are lurking around every corner like golden lanceheads on Ilha da Queimada Grande. If you’re unfamiliar, this is a 106-acre island located roughly 90 miles from Sao Paulo that is nicknamed “Snake Island,” writes Landon Whaley Tuesday.

The name comes from the fact that there are five snakes per square meter on the island. And not just any snake; the golden lancehead is a member of the pit viper family. They grow to over a meter long. That’s five meters of snake per square meter of island, and their venom is so toxic and fast acting you’ll be high fiving Prince within 45 minutes of being bitten.

If financial markets were an island, then headline risks would be as prevalent as golden lanceheads on Snake Island, and the danger to your portfolio is just as real.

This week’s golden lancehead of headline risks is the report that the Organization for Economic Cooperation and Development (OECD) was forced to cut its growth forecasts, primarily because of trade tensions and the deterioration in emerging markets.

First off, we’d like to officially welcome the OECD to the growth slowing party, nine months late.

What’s even worse is that the OECD says that since its last forecasts (May), “differences between economies have widened, confidence has fallen, and business surveys across the world point to a slowdown.” That statement falls under the “no ---- Sherlock” category, but what makes me feel like I’m on crazy pills is that this isn’t a post-May development.

We track 43 economies globally, of which 27 have been slowing since January. We admit there were some less critical economies in this list, including Austria, Belgium, Norway and New Zealand. These guys don’t really move the global economy needle.

But here are a few you may have heard of with some impact on global economic activity: China, eurozone (Germany, France, Italy, Spain), Japan. The Guardian calls the OECD a “leading think tank.” Well, the heads at this leading think tank didn’t so much as acknowledge growth slowing back in May even though it was slapping them in the face.

The OECD’s chief economist Laurence Boone said in an interview related to these lower growth forecasts, “Global growth is hitting a plateau.” Hey Larry, global growth hit a plateau in Q1 with the same fervor that Ivan Drago hit Apollo Creed. It’s time to throw in the “growth accelerating” towel, Larry; the globally synchronized recovery is so 2017.

As we sit here with a week to go in Q3, we now have 38 of the 43 economies confirmed in growth slowing regimes. Hitting a plateau? I’m no chief economist (thank my stars), but I can think of far better descriptors of global growth than “hitting a plateau.” How about “as ugly as homemade sin?” Or “more bearish for equities and risk assets than Yogi and Boo Boo?”

I know you’re a Davos guy, Larry, but riddle me this: there are only 13 global markets (across equity, currency and commodity asset classes) that are in positive territory for the year. Is this market reality indicative of a “growth plateau,” or is it something a bit closer to “careening off a cliff?”

The headline risk bottom line is this: don’t wait for a leading think tank to tell you what’s happening in the global economy. By the time it fully acknowledges that the global economy is in a slowdown, growth will likely already be accelerating higher.

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