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.