The Latest On The Global Economy: Declining Data And Worse To Come Will Fuel Bear Markets That Just Intensify The Global Economic Decline

Putin’s disgusting gambit in Ukraine is shredding optimism in the global economic rebound from COVID, and this drop in confidence will only amplify with each day of stock market volatility like we saw yesterday. The volatility risk premium points to a higher market over the next few days, but my technical reading of key stocks in the S&P 500 is bearish. There are several negative factors across global asset classes. Oil is pointing to stagflationary conditions. The US yield curve is rising and in the current context that is bearish. Inflation expectations are rising based on measures of Treasuries and TIPS. Expect the S&P 500 to fall over the next few days.

The global economy is cracking under the strains of both domestic failures and Putin’s malevolent war on Ukraine. Asian nations like India and South Korea are hurt by energy price inflation and that diminishes their role as global bright spots. In China by contrast, inflation has been coming down and will continue if China buys Russian oil at a discount, helping the PBOC maintain easy money. But that doesn’t solve the property crisis, which both reflects and signifies actual confidence within China. The fact that the Chinese Communist Party has conflicting goals with regard to the Russia-Ukraine crisis means the property crisis is likely to be neglected, making the CCP’s vaunted goal of 5.5% GDP growth look optimistic. That hurts European exporters and is showing up in recent industrial data, which points to declining fortune in leading exporters Germany and Italy. Both of these EU nations are also highly dependent on Russia, so a potential double whammy from Eurasia likely sends the EU into recession. So while the US economy shows signs of persistent growth, the international segment is declining and this translates into declining earnings estimates, which Wall Street Analysts are just starting to publish. That will fuel more volatility in equities and amplify declines in confidence, keeping the vicious cycle intact until valuations are significantly lower.

My current positions include a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), Titan Machinery (TITN) and the levered ETF UPRO.