Market volatility
has been increasing
for a number of weeks now.
Is this the calm
before the storm,
and are we in for
a global recession?
I would argue that the next
global downturn is already
upon us.
By some indications there are
still a lot of positive signals
out there in the economy.
Politicians in the US
talk about the robustness
of the US consumer.
And yes, the headline
figures in spending
have been relatively
strong given how late
we are in a recovery cycle.
But if you dig down
deeper you start
to see some real fragility.
US consumers are starting to
pare back on credit card debt.
They're also spending less
on gasoline and motor fuel
in the middle of
a summer vacation
season, which is quite unusual.
If you spread out beyond
the borders of the US
and look at what's
happening around the world,
you see the purchasing
managers' indexes, which
are a very
forward-looking indicator
of the global economy, are
quite weak in places like France
and Germany, as well as the US.
The bond markets are sending
some very negative signals.
We've seen inverted
bond yield curves
in both the US and
the UK, and these
are one of the best
and most important
predictors of a
coming recession.
I think that the thing
that the market is going
to be looking for in the
future is whether or not
there will be a US
trade deal with China,
and I think that
by all indications
that's not going to happen.
You'll see President
Trump trying
to step in with a head
fake now and again,
perhaps pushing
tariffs back to help
delay the pain throughout the
Christmas shopping season.
But fundamentally, the US is
asking China to make changes
in the party, in its
economy, in ways that it
feels are fundamentally unfair.
The Chinese have said that
they will not accept anything
less than a deal
of equals, and I
think that President
Trump is constitutionally
incapable of crafting
a win-win deal.
Beyond that, and at a
very fundamental level,
you're looking at the fact
that monetary policy is really
tapped out.
Central bankers have
been the only game
in town for the last decade,
if not the last four decades,
depending on where you would
like to put the marker.
And the recent rate cut by the
Fed simply didn't move markets.
I think that we are
tapped out on what
we can do with monetary policy,
and we need fiscal policy
now to step in and really
create a new growth story.
Unfortunately, governments
are gridlocked everywhere
- you have leftwing
pop parties -
rightwing parties growing
in many parts of the world.
And if the populous
come to power
you may start to see some
real shifts in the licence
that companies have to
do business as usual.
All this to me says
that we are headed
into the next global downturn.
