Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Why the Coming Global Recession Will Hit the U.S. Harder Than Last Time

Monday, March 25th, 2013
By for Profit Confidential

While the mainstream focuses on the smallest nation in the eurozone, Cyprus, I am concerned about the overall health of the global economy. The reality is that progress in the global economy is slowing down with major economic hubs struggling.

Dear reader, Cyprus will eventually get a bailout. We have already seen countries like Spain, Portugal, and Greece each receive a significant amount of loans to keep their countries afloat. Why would Cyprus be any different?

But aside from Spain, Portugal, Greece, and Cyprus, when I look at the remainder of the global economy, I see a recession emerging. Demand is simply declining in the global economy—which I believe will lead to a recession.

Look at China: the Chinese economy is expected to grow at 8.1% in 2013 and eight percent in 2014. In 2012, the country grew at the slowest pace in 13 years. (Source: The Sydney Morning Herald, March 20, 2013.) But I believe the growth forecasts for China are overly optimistic.

The Chinese Customs Administration reported that the country imported only 56.4 million tons of iron ore—the main ingredient for steel production—in February 2013, compared to 65.5 million tons in January. This represents a decline of almost 14%. Steel production in China gives us an idea about the health of the global economy.

According to Citigroup Inc. (NYSE/C), steel demand in China was only 2.1% in 2012, compared to 20% in 2010. Keep in mind that China is the biggest producer of steel in the world!

Similarly, the Japanese economy—a well-known exporter in the global economy—is facing hardship, too, as its exports decline and the country is back in a recession.

The eurozone, one of the major hurdles for economic growth in the global economy, continues to be in severe distress. It’s not only debt-infested countries that are struggling, but stronger nations like France and Germany are begging for growth now, too.

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On the other side of the global economy, Brazil is facing economic scrutiny as well. According to the country’s central bank, Brazil’s trade deficit in February was $1.3 billion, compared to a surplus of $1.7 billion in February of 2012.

These are just a few hints of how sick the global economy really is.

For us here at home, a recession in the global economy will further weaken the U.S. economy, as 40% of American-based S&P 500 companies that derive sales from outside the U.S. face mounting pressure for earnings growth. Once big U.S. companies start suffering, it’s all downhill from there for the U.S. economy.

Where the Market Stands; Where It’s Headed:

The stock market is overbought, with far too much optimism amongst stock advisors and investors. Corporate insiders are at their most bearish level since the late 1990s. (See “Corporate Insiders Most Bearish in 14 Years.”) Corporate earnings growth will be negative again this quarter, the second time that’s happened in the past three quarters. The VIX is at its lowest level in years (see “Fear Index Says This Stock Market Reminiscent of October 2007”), and the U.S. economy almost had negative growth in the last quarter of 2012.

I’m sitting back, just waiting for this market to fall.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.” Michael Lombardi, Profit Confidential, December 13, 2002. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments.

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  • Scott Heitland

    Agree with all of your contentions here, Michael. Yet the sheeple continue to be misled by the mainsteam financial press and fooled into the false narrative that "things are getting better" while the central banks of the world continue to print fiat in volumes never before seen just to keep the global economy from careening head first into the proverbial ditch.

  • Nathan Eversole

    The middle class ceases to exist. Who exactly are supposed to be buying goods these days?

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles