"It’s not just the U.S. economy that is throttling growth back to stall speed,
but the global economy as a whole. One of the most powerful big picture concepts
that has taken place over the last decade is globalization, the
interconnectedness of the world economy, and right now it's skating on thin ice.
While the U.S. may have been the fire starter with its subprime crisis back in
2007-2008, this time it may be the Euro crisis that pulls the global economy
underwater. The heart of the matter in the eurozone and other developed
economies is too much debt relative to their productive output—a situation set
to intensify as a slowdown in growth (shrinking economies) exacerbates the debt
to gross domestic product (GDP) ratios as it becomes more difficult to service
debt with shrinking revenue.
You Go, I Go, We all Go
You Go, I Go, We all Go
As mentioned in the opening paragraph, investors and economists cannot look
at the U.S. in isolation as globalization has become a dominate theme over the
last decade. Over the last two years, corporations have had record earnings with
a large portion of revenue coming from overseas, also partly explaining why U.S.
markets have performed so well despite this being one of the worst recoveries
since the Great Depression. Large-cap blue chip names are benefitting from
globalization as they are increasing exposure towards faster growing foreign
markets
That said, globalization is also a double-edged sword. As you can see from
the figure below, starting from the early 2000s many global economies started to
synchronize, minimizing the previous benefits of diversifying their corporate
revenue bases geographically to shield from regional downturns. Now, the leading
economic indicators calculated by the OECD for various regions and countries
show we currently have an economic slowdown where everyone is getting dragged
over a cliff.
As highlighted in my last article, a number of major upcoming economic releases were
likely to disappoint, and a U.S. jobs report for August that showed zero job
growth is testament to that. However, we did not just have a disappointing
economic showing last week domestically, but also worldwide..."
