Lead times — the gap between when a column is written and when it appears in print or on a reader’s screen — are an occupational hazard in the punditry game. The challenge is to write something without resorting to dreaded weasel phrases such as “it remains to be seen” or “only time will tell” while also avoiding the danger of having the premise overtaken and negated by ensuing events.
And thus we turn to the wobbles of global stock markets during the previous week.
It could turn out to be a lot of uproar over nothing, a blip, a hiccup, that will have been forgotten by the time you read this, a momentary interruption of continued economic expansion. Or it could be the harbinger of something more prolonged and unpleasant, a correction at the least, a recession at the worst.
Only time will … oh wait, we promised not to say that.
We’ve been through this drill before. In October 1987 we spilled tanker loads of ink on forests of newsprint about the ramifications of a one-day, 22.6-percent plunge in the Dow. The ramifications, it turned out, weren’t much — the economy didn’t seem to notice and the markets recovered their value within a few years.
Two years later a smaller one-day plunge prompted similar hand-wringing. If you look at a long-term chart of the Dow over multiple decades, that one barely registers, and the trend line continues upward, but the U.S. economy was headed for a recession.
By contrast there was no one-day cataclysmic market plunge in 2000 that everyone could point to and say, “Aha! That’s when it all went south.” Instead there was a series of dot-com companies that ran out of money and the willingness of investors to believe that those ventures would ever make a dime in profit. The Nasdaq composite index wouldn’t establish new highs until this year. Yet that wasn’t a shock to many Americans who had long scoffed at the values assigned to even the flimsiest dot-coms, and who were proven right.
The asterisk to that history is that there was one nonmarket event that was cataclysmic and consequential — the terrorist attacks of 9/11. The subsequent layoffs at Boeing, coupled with the lingering effects of the dot-com bust, put the region fully into recession.
Nor was there a single bad-day-on-Wall-Street moment in 2007 or 2008 that warned everyone a recession was coming. Instead there was a series of meltdowns, prompted by continuing bad news about mortgage lenders and investment bankers culminating, for this region, in the collapse of Washington Mutual. But then, people didn’t need the market to tell them the economy was in trouble. They knew that a year before the running market debacle of 2008.
So what have we learned? That for all the supposed prowess of the stock markets to predict economic trends, for all the received wisdom that the market looks ahead not backward, it’s really not all that useful in telling us what’s coming.
Which is, counterintuitively, we’re going to advise that you pay some heed to what the markets may be saying this time.
The world, you may have heard, is a mess. China’s economy appears to be unraveling in spite of the government’s efforts to keep it propped up. Europe can’t decide what to do about Greece and what that would trigger so for the moment it does nothing, leaving it time to do nothing about the waves of refugees and what mischief Vladimir Putin might be contemplating next.
Brazil is dealing with a slowing economy and political upheaval.
What that means is that the one large, relatively stable, decently performing economy in the world is … ours.
Us? Really? We’re not done getting over the last recession. And yet, for the moment, the U.S. is a comparative good-news story. We’ve got some growth. We’ve got cheap energy. Our manufacturing sector is getting its act together in global competitiveness. Our ag sector is still strong.
That doesn’t mean that we’re immune from or isolated from global problems — or those of our own making. What happens to Boeing’s plans to gear up production of multiple models if the rest of the world can’t afford new planes? What happens to our exports, such as ag commodities, if a strong dollar prices them out of world markets? What happens to the tech sector if investors no longer feel like bidding up stocks?
The global markets have sounded false alarms before. They’ve been asleep when they should have been issuing warnings. They’ve told us what we already know. It remains to be seen — sorry — if one of those scenarios is the case here, but waiting around to see how it turns out without doing any preparation could well lead to you hating what you see, and being powerless to change it.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at firstname.lastname@example.org.