Economic Recovery - Suspect (#10)

In September, 2012, in our first Economic Report, and the subsequent two Reports, we had reiterated our view that in spite of constant and massive financial stimulus being undertaken by most of the major economies of the World, sustainable global economic recovery was not possible, as the fundamental structural reforms needed in these economies were not being undertaken by most of the governments concerned.

Six months later, our prognostications have been proving right, as all economies are still struggling to get any real traction on the path to real recovery. We use the words "real traction" as we do not consider the positive numbers being posted by the major economies as quite "real". Firstly, the current numbers are primarily driven by excessive stimulus, which means that if that stimulus were to be withdrawn today the growth numbers would collapse, today! Therefore in our view, that type of economic recovery is not quite "real". Secondly, we are suspect of the numbers being posted, as we know that in desperately trying to put the best face on a truly grim picture, governments of all stripes and colour, in all countries, will push the numbers to the top most side of optimism, to put it politely. In other words, we are not convinced that even the anemic picture being presented today is quite real, but is more of what can be painted without arousing open disbelief and incredulity.

In North America (Canada and the U.S.) the economies had been showing poor but positive growth rates, but that "recovery" has suddenly become suspect, as the latest negative job numbers for the month of March have dramatically called established assumptions into question. This is in spite of unprecedented stimulus now having been applied for years. If there is such weakness in the economies after the extraordinarily prolonged and unprecedented stimulus, then surely the patient has been more dead, than just sick. But, what about the record setting stock markets, you might ask. Yes, people have been taking great comfort from the high flying stock markets, seeing their extraordinary rise as some sort of definitive proof, that fundamentally the economies must have mended to justify such euphoria in the markets, particularly in the USA, where they have been soaring and setting new record highs. May we politely remind you, that at most times, the financial markets are driven by those in the driver's seat, in isolation to the economy at large. It certainly is the case now, as excessive cash liquidity in the form of $85 Billion a month, is what is driving the stock markets, not the fundamentals of the economy. That not only means, that there should be no comfort taken from the markets regarding the health of the economies, but that the sustainability of the high flying markets themselves is quite suspect - in our view.

Europe is a dangerous basket case at the moment, economically speaking, and still has the potential of derailing the entire global economy.

China and India are showing growth numbers that look almost respectable but are they quite real, or are they "target" numbers, of command (planned) economies whose legions of bureaucrats toil tirelessly to produce the precise numbers that the masters want, for projecting the right image needed at the time?