Synchronized Global Growth is Ending: Shocks Come Next

Economic pleasant surprises are in the past, as is the buildup of the balance sheet. The future is deleveraging.

Alarm bells are ringing. No one cares. By now, everyone knows stock only go up.

For those in tune with other ideas, Financial Times writer Stephen King suggests the Global Economy is Due for a Downswing.

Jim Bianco at Bianco Research comments on synchronized growth in his report Concerted Economic Growth is in Jeopardy of Ending.


Less than 50% of the world’s economies are now producing economic data surprises. Realized economic data following suit in the months to come would remove the tailwind of ‘concerted economic growth’ for risk assets and central banks. Emerging markets may be first on the list to experience higher volatility.


We have all been discussing ‘concerted global economic growth’ since early 2017 as a tailwind to risk assets and central bank policies. The chart below shows the percentage of the world’s economies producing economic data surprises (orange line) and above-average data changes (blue line) since 2004.

Over 90% of economies were indeed posting realized data changes at above-average growth rates in mid-2017. However, reported data has slowed its ascent over the past month led by the Eurozone and Canada. The percentage of economies with upside surprises has fallen to 44%, which has been a leading indicator for actual data changes like payrolls, industrial production, and durable goods orders. Above-average data changes have also rolled over to 67%. A break below 50% would mean ‘concerted economic growth’ should no longer be proclaimed.

Economic Misses

The next chart offers the median returns by major asset classes after the percentage of economies growing above-average falls below 60%. The impact is not immediate, but higher volatility and drawdowns do ensue over the following months.

We expect U.S. Treasuries will slow their climb in this event, helping promote more steady, positive returns by the likes of municipal bonds. Emerging markets, U.S. high yield, and the S&P 500 are not necessarily expected to tumble, but higher volatility will remain the theme.

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Optimistic View

Compared to me, John Hussman, GMO, and a handful of others, Bianco presents an optimistic view. Then again, I am not watching the next 3-4 months. I am concerned about the next seven years.

What most caught my eye is Bianco's view on the MSCI World Index and US treasuries.

Typically, rot starts at the periphery, the spreads to the core. Anyone remember subprime? Eventually, it all became subprime.

It's going to happen again.

Arithmetic of Risk

Stocks are tremendously overvalued. In Sucker Traps and the Arithmetic of Risk I noted that some expect equities to decline as much as 67% from here.

I think we are somewhere in the box as shown.

Unlike Bianco, I won't put a timeframe on much of anything. But note his big winner: 10-year US treasuries.

This is at a time when most of the rest of the world is screaming inflation.

Debt-deflation is on the way and gold will be the beneficiary. If you disagree, please read the above article before moaning.

My definition of inflation may not be the same as yours. Mine is based on real-world economics, and we are in for a world of hurt.

Mike "Mish" Shedlock

Just in time for the doves on the FOMC to become hawks and start massive dumping of their balance sheet? Brainerd and George, for instance believe this Fed is too accommodative.

The real return on the 10yr is less than 1%, and that's with historically low inflation? I understand that investment might be relatively safe, what does that say?

"The real return on the 10yr is less than 1%, and that's with historically low inflation? I understand that investment might be relatively safe, what does that say?" To me, it says there are no profitable investments to be made on main street.

@Mish, "Typically, rot starts at the periphery." And given prices are set at the margin, take away Risk Parity, Passive Investing and Buybacks? Poof! No margin. Food for thought :-0 Barbaric doorstops will likely have their day in the sun again, eventually. Surely within that 7 year time frame Mish mentions up there.

Mish has been pessimistic about the economy for many years. He continues to be pessimistic going forward. His prediction of a recession and negative returns going forward is over a 10 year period. There could be several years of continued slow growth for several years to come (my own personal belief). My biggest fear is not interest rates, the fed, debt levels, or markets. My fear is Trump starting a trade war because he doesn’t understand how things work in the world economy. Maybe Kudlow can get in there and explain it to him before he starts the next recession prematurely.

Yeah, I've followed Mish since the old Whiskey and Gunpowder days. I will admit, his logic did dovetail well enough with events back in 07, to convince me to get out of stocks back then. Not far from the top, I might add. He was also instrumental in persuading me to forgo further RE purchases around that time, but then the writing was pretty much on the wall about then. Grantham, at GMO has also been one of my "go to" sources to temper any overly enthusiastic impulses I may experience. Fundamentally, Mish has things pegged. But in the world of centrally planned manipulation, well, let me just say, a few years back, he didn't understand the lengths the planners would go to in order to keep the plates spinning, ie QE, and TARP, along with what these whacko policies would do to reinflate the wealth effect sectors of the economy. The above said, I agree with him 100% that in the end, the Austrian School will win out. The planners will ultimately bow to Human Action.


In closing, I agree we are in for years of slow to negative growth going forward. The place where I disagree with mish is in deflation. I believe the 7+ years in front of us from this juncture will be stagflationary. Central Planners die hard.

Gold hit $1900/oz in 2011 but it was more of a response to The Arab Spring and the sense of it spreading more rapidly than first thought. Completely unforeseen events affecting an asset class that is closely watched all over the world. As much as I loath them, can’t put it all on the Fed. We just don’t know what the next few years will bring and watching CNBC is unlikely to reveal much.

That's pretty neat and tidy summation of how the world has played out against Mish's position the last ten years, and I would agree with you that we should expect stagflation going forwards for the foreseeable future, but there is one thing you have underestimated: the property market. How much control do you think the central banks have over that one eh?

Its like the game of musical chairs, when music stops playing punch the others in the head and grab a chair.