The Real Reason Why Stop/Go Is Back To Stop Again

These things have typically started in global trade. This makes sense given what we are dealing with are intermittent problems in global money. Quite simply, you can’t trade if you can’t get any. Therefore, the more acute the dollar shortage the more disruptive to the global merchandise economy.

The one exception to this pattern was the first. Euro$ #1 registered beginning by damaging broad demand within the developed world. This, too, was unsurprising since the first outbreak of it registered as a reverse for the credit-driven asset bubbles. Difficulties for trade materialized later, the middle of 2008, which for a time fueled the narrative of decoupling (weakness in US and Europe wouldn’t spill over into Asia and EM’s). Eventually, shadow money would disappear for Asia, too, and then decoupling did. 

Either way, the result has been the same each and every time. Every piece of the global economy eventually succumbs. Despite some claiming a new version of decoupling in 2018, weakness in Asia and EM’s that won’t spillover into the US and Europe, there is growing evidence of first that weakness in trade directed at Asia followed by greater concerns over Europe.

The US hasn’t been spared, either, though it is currently lagging behind all the rest in the race which has no winners.

The pathology of Euro$ #4 is the familiar one. When we examine the trade statistics, the direction for the world economy at the end of 2018 is pretty clear. There is hope, always, that perhaps things will turnaround before it gets much worse. However, as is plain on each chart below it doesn’t really work that way; global trade is like a massive ship, once it starts turning in one direction or the other it doesn’t just turn on a dime.

The further the turn in whichever direction, the more it takes to get going back the other way.

The data is uniform in showing how 2018 was merely the early stages of a downturn; the peak of Reflation #3 taking place around last January. As the year finished up, there were more and more minus signs proliferating especially in key export countries like Germany, Japan, and the Republic of Korea.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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