The “Other” PPP
One month ago, I sent an email to our team with a link to Lakshman Achuthan of the ECRI who was warning about a global slow-down in industrial activity. We now know he was spot on, yet the rest of the world still seems to be shocked that recent data has come in so weak. Consensus continues to point to “temporary shocks” for the dip in activity, and most investors still believe the economy will rebound in the second half as oil prices have declined and Japan comes back on line.
During last year’s “summer slow-down,” Achuthan correctly forecasted the lull in economic activity, but was adamant that we would not “double dip.” He is singing a MUCH different story today. He sees no reason for a rebound and expects the US and global economy to weaken further in the year ahead. Importantly, their leading indicators turned down well before Japan and have been declining since the beginning of the year. It would seem they have accelerated to the downside. Regarding the sustained slowdown, he says, “It’s Pronounced, it’s Pervasive, it’s Persistent.” The full clip is worth watching.
Equity markets are down six weeks in a row, but still only marginally off the highs. We are nowhere near pricing in a pronounced, pervasive, persistent slow-down. As usual, John Hussman summarizes the current environment as well as anyone on the street. His commentary is available at the link below.