GLOBAL COOLING: The World's Dangerously Slowing Economy In 4 Simple Charts

Despite the political rhetoric of the economic experts and market media pundits, the world economy is slowing and likely to slow even more dramatically in the short months and years ahead.

The reason this is dangerous right now is that most financial markets across the developed economies of the world have yet to appropriately discount this significant market risk and economic reality. In fact, many stock, bond, and real estate markets still trade precariously at or near their all-time highs.

With financial markets now entering the 8th year of our long running 5 – 7 year boom-to-bust market cycle, this can and will likely change at any moment.

Real market price actions always speak louder than words.

The following 4 simple charts are all you need to see.

1.  CRUDE OIL


Energy is the life blood of economic activity, and crude oil and fossil fuels still supply over 80% of the world’s energy output. Despite ‘peak oil’ supply concerns and an increase in alternative energy production over the past decade, oil prices are now in record free-fall. Although crude oil supply has grown significantly, depressed oil prices may indicate that world demand for oil is slowing dramatically too – with oil prices off over 65% in 18 months.

2.  COPPER


With copper’s widespread use in many sectors of the global economy, the market price of copper often reflects on the overall health of the global economy. ‘Dr. Copper’, as noted above, has been in relative ‘crash mode’ since late in 2011, dropping nearly 55%.

3.  INTEREST RATES


World interest rates and government bond yields are arguably the most important leading indicator to the world’s economic prosperity. With the record low interest rates and the global ‘cost-of-money’ also in free-fall across the developed world, a deep economic deflation is now unfolding despite the global central banking rhetoric and spin.

Further evidence of a worldwide deflation is the European Financial Stability Facility (EFSF). The EFSF was created to safeguard financial stability in Europe by providing financial assistance to euro area member states. As you can see from the current negative bond yields above, European debt and the European economy is on life support too.

4.  U.S. DOLLAR


Last but not least, the world’s reserve currency and global de facto safe haven remains the US Dollar. As a rule, capital will seek out safe haven currencies and investments when concerns for the economy and markets turn precarious and troubling.

With this in mind, note the clear evidence of a significant ongoing flight-to-quality over the last 18 months with the massive international capital flight into the USA as illustrated in the rising US Dollar Index above. The US Dollar Index is up over 25% over this short period, with near 25% direct upside performance versus major core economy currencies including the EURO and Japanese YEN.

As the world continues to cool (economically), the world’s central bankers outside of the US are aggressively cutting interest rates and devaluing their local currencies in an attempt to export their economies into prosperity. A new global currency war is well underway. As a result, we expect that the rising US Dollar still has a long way to go.

With real market prices reflecting the aggregate sum of all economic and investor input in real time, it is real market pricing that remains the most important and reliable market indicator of future economic activity.

Despite the constant rhetoric to the contrary, price never lies. Price matters.

The world economy is dangerously slowing. Invest accordingly.
Kirk D. Bostrom
Chief Portfolio Manager
Strategic Preservation Partners LP

http://sppfund.com

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Disclaimer: The views expressed are the views of Kirk Bostrom and are subject to change at any time based on market and other conditions. This material is for informational purposes only, and is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. The opinions expressed herein represent the current, good faith views of the author at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, the author does not guarantee the accuracy, adequacy or completeness of such information.

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