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Friday, December 16, 2011

Global economy fading fast …and no rescue this time

Global economy fading fast … and no one’s coming to the rescue this time!

Mike Larson | Friday, December 16, 2011 at 7:30 am
Mike Larson
There’s no longer any doubt. It’s not something the bulls can argue against. The global economy is fading fast — from one end of the world to the other. And many markets are rolling over sharply.
Just in the last several days, we’ve seen …
* Indian industrial production plunge 5.1 percent in October. That was more than four times the 0.7 percent drop that was expected, and the first decline since June 2009. The Indian rupee is plunging as a result, recently hitting the worst level against the dollar EVER!
* Brazilian economic growth slow substantially. The country was growing at a greater-than-7 percent rate last year. In the most recent quarter, it didn’t grow at all! Brazilian stocks are falling, and so is the currency, the real.
* Chinese export growth just slumped to 13.8 percent in November. That was the lowest in three years, and it followed weak news on manufacturing and auto demand. The Shanghai Composite Index, a benchmark domestic equity index, just tanked to its lowest level in 33 months!
You already know Europe is a basket case, so I don’t need to rehash that. But here in the U.S., the so-called economic recovery is also starting to peter out again. Retail sales rose just 0.2 percent in November, for instance. That was one-third the rise that was expected, and the weakest since June!

Next up? More problems in the housing market, and widespread layoffs among multinational corporations and retailers trying to bolster profits. After all, we’ve already gotten earnings warnings from Best Buy (BBY), DuPont (DD), Pentair (PNR), Altera (ALTR), Texas Instruments (TXN), and Intel (INTC). And more are coming down the pike!
Despite all the lousy economic news and slumping profit growth, the stock market somehow managed to hold up in early December. Why? The bulls didn’t want to give up on the idea of a “Santa Claus Rally.” They figured their fiscal and monetary policymaker buddies would come through and save their bacon.
But what happened instead? The bulls got a bitter pill to swallow …
A Triple Dose of
Policy Disappointments
First up was the European Central Bank (ECB). Like I detailed last week, it refused to kowtow to the Wall Street whiners and print money to buy sovereign bonds. Just as I expected, resistance stemming from the cultural and political history of its strongest backer, Germany, carried the day.
Up next were the fiscal policymakers in Europe. They announced what they claimed was a “Grand Bargain” — with many of the 27 countries in the European Union submitting to tougher fiscal discipline. They also said national central banks in Europe (but not the ECB) would funnel 200 billion euros to the International Monetary Fund (IMF) to help increase the size of the “firewall” against a debt market meltdown. And they moved up the date that the 500 billion euro European Stability Mechanism (ESM) would be put into place to next summer.
The big problem though? All of those were rehashed ideas that previously failed to stem the debt crisis! There was nothing new! Nobody in power over there has a solution to the dilemma that has doomed all the bailout programs from the start. Namely, that the AAA countries that are supposed to fund them are seeing their own debt costs surge as investors get ahead of the ratings downgrades they know are coming!
Despite those two huge European disappointments, investors weren’t ready to give up hope yet. They were still hoping earlier this week that their money-printing buddy Ben Bernanke would announce (or at least strongly hint at) yet another round of the failed policy of “quantitative easing.”
The Fed decided  it can do without more stimulus, which disappointed investors.
The Fed decided it can do without more stimulus, which disappointed investors.
But the Fed gave no hint whatsoever that a QE3 program was coming! Not only that. Policymakers also didn’t say they would alter their communications strategy about the future direction of interest rates. That was another thin reed that the bulls were clinging to, and Bernanke et al. just snapped it in half!
What to Do Right Away before 
Markets Really Come Unglued!
Long story short, the global economy is slowing. The U.S. economy is about to slow further. And the fiscal and monetary policymakers that the bulls have been able to count on for so long are out of bailout solutions.
Nothing is working for more than a few days because the underlying problem has not been solved — too many countries and too many banks owe too much money — and defaults and deleveraging are inevitable!

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