Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

G20 Dilemma: Falling Trade, Soaring Stock Market, Looming Contraction

Stock-Markets / Global Stock Markets Mar 22, 2017 - 03:25 PM GMT

By: Dan_Steinbock

Stock-Markets There is a deep chasm between America’s historical rebuff of G20 efforts, which seek to re-ignite trade, and markets, which remain at record heights. This rift is untenable.

Historically, Baden-Baden’s spas are famous for their healing waters, which have healed ancient Romans’ arthritic aches, Prussian queens’ rheumatism and European aristocrats’ paralyses. Nevertheless, the G20 Summit is fresh evidence that even Baden-Baden cannot do miracles.


As US Treasury Secretary Mnuchin rebuffed the push by the masters of the global finance to renounce protectionism, concerns are mounting that the Trump administration will execute its “America First” policy, even at the risk of unleashing waves of retaliation worldwide.

As world trade is frozen but markets remain close to record-heights, contraction is looming in the horizon.

(Bad) History in Baden-Baden

History was made in Baden-Baden, but not the kind of history that the world economy needs. For the first time since the global crisis year of 2008, the world’s leading finance ministers, dropped the commitment to free trade. It amounts to the most consequential shift of the international trading community since World War II.

Following pushback from Treasury Secretary Steve Mnuchin, the G20 Summit backtracked from a joint position that would have explicitly renewed the long-standing pledge to free trade.

The timing could not have been worse. Before the global crisis, world investment soared to almost $2 trillion. Today – almost a decade later – it remains below that level. The state of world trade is even worse. World export volumes reached a plateau already two years ago. World trade has stopped growing.

In turn, the third leg of globalization, global migration, is plunging or stagnating, while refugee crises escalate. In the past year, more than 65 million people – more than ever since 1945 – were displaced from their homes by conflict and persecution.

To foster global recovery, finance ministers should have hammered a compromise in Baden-Baden. Instead, the White House tied their hands, which reinforced concerns about new US protectionism and increased trade friction in the coming months.

But if that’s the case, why are markets smiling?

Bubbling markets

At the peak of globalization in May 2008, the Baltic Dry Index (BDI) - a barometer of international commodity trade - soared to a record high of 11,793 points. Today, even before trade friction, the Index remains 90 percent lower than a decade ago.

That’s not the case with US equity markets, however. Since March 2009, the broad Dow Jones Industrial Average (DJIA) has more than tripled to soaring to more than 20,900. The blue-chip S&P 500 Index (SPX) has kept its gain at close to 2,380. And the tech sector’s Nasdaq Composite Index (COMP) exceeds 5,900.

According to the cyclically-adjusted price-earnings ratio (CAPE), the average now exceeds 29, which is about the same as amid the Wall Street crash in 1929 that heralded the Great Depression.

Historically, the CAPE average has been higher only once – in December 1999 – when the technology bubble finally burst and markets crashed. Of course, history does not always repeat itself in the markets, but it does rhyme. If the century-long CAPE median is about 16 and the current figure is 50 percent higher, markets appear to be substantially overvalued.

Looming contraction

What makes the huge discrepancy between fundamentals and markets extraordinary is that valuations have ignored the negatives of the Trump administration’s measures, while touting the positive consequences of Trump’s executive decisions and signs of accelerated deregulation, privatization and liberalization. Also, as the Fed will continue to tighten, it will conflict with the administration’s infrastructure plan but also subdue growth prospects.

In the long term, markets penalize investors for such discrepancies. After all, the leading movers of those markets feature America’s largest companies from financials (American Express, Goldman Sachs, Visa) to industry giants (Caterpillar, Disney, McDonald’s) and tech leaders (Apple, Cisco, Microsoft).

Indeed, these are corporate titans, which earn an increasing share of their revenues in foreign markets - especially in those country markets that the White House is about to challenge.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in