“By February 2018, 70% of the economies we track were already in slowdown mode, and now 85%, including the U.S, China, the eurozone and Japan,” writes Landon Whaley, who is presenting at MoneySHow Orlando Feb. 9.
Headline risks are everywhere, much like billionaires at Davos. This week’s “Headline Risk” comes courtesy of the International Monetary Fund (IMF), and their tendency to be a day late and a dollar (euro, yen, pound, loonie, real) short to shifts in economic data that have a profound impact on financial markets.
The IMF is one of the “old institutions,” which include but is not limited to: Wall Street firms, every central bank on Earth, organizations like the IMF, foreign banks, traditional media and think tanks like the Organization for Economic Cooperation and Development (OECD).
These groups continue to use outdated and dogmatic approaches to evaluate economies, and this approach consistently puts them behind the eight ball. In a speech last week at the World Economic Forum in Davos, the IMF's Managing Director Christine Lagarde said: "After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising."
I thought this quote was from January 2018, not 2019! “After two years of solid expansion” … are you kidding me?
Hey, Christine, that “solid expansion” you’re referring to ended 12 months ago, but thanks for showing up. By February 2018, 70% of the economies we track were already in slowdown mode, and now 85% of those economies are slowing, including the largest: U.S., China, the eurozone and Japan.
We’re seeing a few green shoots in places like Portugal, the Netherlands and New Zealand, but growth acceleration is not occurring in economies that actually move the global growth meter.
Not only is growth slowing, but inflation is also slowing across a wide swath of economies.
That’s one hell of a two-headed economic monster, so Lagarde is right (albeit late) to say that “... even as the economy continues to move ahead ... it is facing significantly higher risks."
As far as her belief that “risks are rising,” did you see what happened in financial markets during 2018? Risks aren’t rising, Christine, they’re already elevated as hell.
As we’ve mentioned before, 2018 was the worst year for global asset classes since the 1970s, and 90% of 70 asset classes tracked by Deutsche Bank posted negative returns. And here in the United States, we witnessed the worst final month of the year for both the S&P 500 and the Dow since the Great Depression.
The Headline Risk bottom line is that in classic Old Institution fashion, the IMF’s forecasts are simply chasing the data lower. They are in the business of sounding the alarms after the move and not before it. While we can’t possibly know how prolonged the global slowdown will be, it’s safe to assume that now the IMF is talking about “rising risks,” a number of economies (not named the United States) are closer to the end of their growth-slowing regimes than the beginning.
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