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

Global Recession Closer Than You Think

Thursday, November 8th, 2012
By for Profit Confidential

global economyThe global economy is deteriorating quickly. As the days pass, more economic news is released, suggesting that the global economy is taking a wrong turn and that a global recession is looming.

We all know what happened in 2009; the global recession occurred when the demand around the globe collapsed. In 2009, world exports saw their biggest contraction since the Second World War. (Source: “WTO sees 9% global trade decline in 2009 as recession strikes,” World Trade Organization, March 23, 2009, last accessed November 7, 2012.)

Fast-forward to the fall of 2012 and regions around the world are witnessing dramatic slowdowns in their exports. Those countries that were once the leaders in exports in the global economy are now seeing a marked downward slide in their trade.

In 2005, exports from the European Union (E.U.) accounted for 40% of the global economy’s total exports. In 2011, it exported only 34%. (Source: Word Trade Organization, October 2012.) Now, with the eurozone crisis taking a heavy toll, exports into the global economy from the E.U. are facing a further decline.

New manufacturing export orders in the eurozone have been declining for 16 consecutive months. Germany, France, Austria and Greece are at the forefront, seeing substantial export slumps. (Source: Markit, November 2, 2012.)

Similarly, in 2010, the U.S. was responsible for 21% of all the exports in the global economy. In 2011, this increased to 16%. With the U.S. still not recovered from the Great Recession of 2009, U.S. exports are showing weakness once again. The U.S. Purchasing Managers’ Index (PMI) for October showed that new export orders have now fallen for five consecutive months. (Source: Institute for Supply Management, November 1, 2012).

  • Double your money every year for 24 years running?

    Since 1989, we've made 912 option picks, with an average annualized profit of 166.17% per recommendation.

    All from Lombardi's best option picks!

    Click here to learn more.

Export orders for manufacturers from the emerging markets to the global economy have fallen for three straight quarters. They are experiencing the worst decline since the first quarter of 2009. (Source: “HSBC Emerging Markets Index Q3 2012,” HSBC, October 10, 2012, last accessed November 7, 2012.)

Growing exports—what a country makes and wants to ship to buyers outside of its boundary—are fundamental to strong economies. But with exports declining around the world, a global recession becomes a very stark possibility. I’m really surprised the media hasn’t picked-up on the worldwide trend of falling exports.

Looking ahead, seeing exports decline consistently and rapidly, it makes me more concerned about a possible global recession springing up on us in 2013. Economic conditions around the world are poor. This time around, a global recession will create bigger problems than it did in 2009, as central banks have run out of weapons to fight it. Interest rates can’t fall below zero; the more money printed, the more the chances of rapid inflation. The year 2013 could prove to be a very difficult year.

Michael’s Personal Notes:

Key stock indices are only as good as the companies that make up those indices. If the companies on the key stock indices perform poorly, the overall index will decline. Similarly, for key stock indices to rise, you want to see the companies perform well.

We are currently in the midst of one of the worst earnings seasons I have witnessed in a while. Large and small-cap companies in key stock indices have been showing poor results. My worry doesn’t end just here. The fourth-quarter earnings outlook is looking to be bleaker than the third quarter.

So far, 68 companies in key stock indices like the S&P 500 have provided their earnings outlook for fourth quarter—52 of these companies have provided a negative outlook. (Source: FactSet, October 31, 2012, last accessed November 7, 2012.). Hence, from the companies that have provided an earnings outlook for the fourth quarter, about 76% are lowering their earnings forecasts from previous guidance.

To make matters worse, the CEO Confidence Index, a measure of the reflections of CEOs on the economy, fell in the third quarter. Business leaders are concerned about the current state and future of the U.S. economy. Less than 12% of CEOs believe that the U.S. economy will improve in the next six months. (Source: “CEO Confidence Declines Again,” The Conference Board, October 4, 2012, last accessed November 7, 2012.)

Poor third-quarter earnings results, downgrades for fourth-quarter earnings, and down-and-out CEOs with a negative market view—all this makes me skeptical about the current state of the key stock indices. Markets are floating in shark-infested waters.

With world exports in a sharp decline, it’s easy to understand why public company profits are being squeezed. Add to the mix a U.S. consumer whose real disposable income has steadily declined along with his savings, and corporate revenue growth comes under pressure. At the end of the day, key stock indices trade on earnings and revenue growth. When there is no growth in either, stock prices regress to the mean, which means they eventually fall.

Where the Market Stands; Where It’s Headed:

Unless someone pulls a rabbit out of a hat, there is no saving this stock market. Bottom line, earnings growth just isn’t there anymore.

What He Said:

“Partying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don’t know. Big (cap) stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one hour waits…people are spending in America today at an unbelievable clip. 1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.” Michael Lombardi in Profit Confidential, February 7, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

VN:F [1.9.22_1171]
Rating: 1.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: -1 (from 1 vote)
Global Recession Closer Than You Think, 1.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

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

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.