Wall Street Is Chasing Ghosts

The point here is that global trade actually increased in the year the trade war began. So, if China’s exports actually increased strongly during the trade war and China doesn’t pay US tariffs, it is paid by US importers, how is it reasonable to contend that China’s growth will surge once a trade war truce is declared? Of course, if tariffs increased to 25% on all of China’s exports to the US it would stunt global growth. But that has not happened yet and investors are pricing almost no chance of it ever occurring.

Again, China is a debt disabled economy—much like Europe—that has been responsible for one-third of global growth coming out of the Great Recession of 2007-2009. However, it just can’t re-stimulate growth yet again by building another empty, unproductive city or port. Stimulating growth now by issuing more debt may be enough to levitate the economy from crashing, but it just can’t produce robust growth any longer. In fact, bond defaults have begun to surge, quadrupling from last year, as the communist nation struggles to handle its mountain of obligations.

Wall Street will soon have a day of reckoning when it realizes the trade war was not at all the primary driver behind the dramatic slowdown in global growth. And global growth is slowing dramatically—with a conveyor belt of bad news to continue well after the announcement of a deal.  US Retail Sales in December crashing by the most in nearly a decade is just one example.

In the developed world we have the Italian economy, which is in an official recession and it is the third largest bond market on earth. Putting global banks that own this debt in high danger. Eurozone Industrial Production plunged -4.2% year-over-year in December after falling 3.3% in November. The headline German (IFO), business climate index, slid to a two-year low of 99.1 in January, from 101.0 in December, dragged down by a crash in the expectations index to 94.2. And Q4 German GDP was exactly 0.0%. Japan’s economy is a perpetual state of malaise, as growth for the full year 2018 was a sad 0.7%. And on an annual basis, its industrial output declined 1.9% in December.

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, more

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