No the global macro environment is not bullish

Posted on 09 February 2012 with 1 comment from readers

Apologies for the double negative in this title but ArabianMoney is annoyed by the assertion by many financial TV commentators that the global macro environment has suddenly turned bullish this year.

What planet are they living on? Well, Wall Street presumably. This is the final hype to gather in the last sheep before everything goes over the cliff. The market highs now are madness.

Global recession?

Bullish global macro? The world’s largest economic bloc is back in recession. We just don’t know whether the European Union faces a mild or deep recession. Ask the Greeks on that.

China is definitely slowing down with Shanghai exports off four per cent last month, courtesy of China’s largest market, the EU which includes the UK. Meanwhile, Japanese GDP contracted in 2011 due to the earthquake disaster and a debt mountain higher than Greece.

What about the Middle East? Oil prices were high last year but large parts of the region are afflicted by depressionary Arab Spring uprisings, revolutions and civil wars. Then there is the ongoing nuclear showdown with Iran.

Bullish commentators are looking at last month’s US unemployment figures and projecting a global economic recovery. It is far, far more likely that this is the blip on the economic data, not a sign that the data stream is somehow pointing in the wrong direction. US transportation data is a leading indicator and has turned down.

What we are seeing is some desperate money printing by the ECB to try to head off an implosion of the European banking system as Greece defaults. Some of that money is inflating financial markets, though the thin trading volumes are a warning that this is artificial.

Naked exposure

The emperor has no clothes. The stock market rally is completely unsupported by a deteriorating global macro environment. See through the noise and the markets are nakedly exposed to another nasty downturn.

Central banks can print money to steal from savers and give to indebted borrowers. But they cannot restore the global economy to health. US commentators who noted how little QE2 achieved in terms of GDP growth ought to know this.

Eventually the bubble in global bond markets will blow up and then many will learn what a bearish macro economic environment really feels like. Greece already knows.

How do you invest in this environment? The ArabianMoney investment newsletter has some clear ideas and is bullish for very different reasons (subscribe here).