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.
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.