I woke up this morning with the sundown shining in
I found my mind in a brown paper bag but then
I tripped on a cloud and fell-a eight miles high
I tore my mind on a jagged sky
I just dropped in to see what condition my condition was in
Yeah, yeah, oh-yeah, what condition my condition was in
– Made famous by Kenny Rogers and the First Edition, 1968
For the past five weeks, I’ve written an open letter to the next president (whoever it turns out to be) about the economic realities he or she will face in the Oval Office on the first day. It is a rather daunting set of challenges. I have been trying to provide a realistic assessment of “what condition our condition is in.” The song the lines come from was actually a semi-veiled warning about doing LSD. My letters have been overt warnings about the economic dangers the next president and the country and the world will face.
In this week’s letter we will take a quick look at the condition of a slowing global economy (the IMF just downgraded its own forecast this last week). Then we’ll grapple with a Plan B scenario, because I have a confession of sorts: I am not entirely optimistic that Congress and the new president can get their act together, so I offer a proposal from former Oklahoma Senator Tom Coburn as to what we, the people, can do to actually change the country’s direction without having to depend on a Congress that may prove dysfunctional. Again.
The World Is Slowing Down
Jeffrey Snider of Alhambra Investment Partners sent out a note last week highlighting some of the current conditions. In his piece entitled “Not Just Manufacturing, the Global Slowdown Is Monetary,” Jeffrey cites a Wall Street Journal article that highlights the very serious slowdown in orders for new big rigs and other trucks. Inventories are at their highest level since before the financial crisis, and sales in March were down 37% from a year ago as fleets remained very cautious about expanding in this environment. Quoting:
Some of this reduction in 2016, as the Journal reports, is due to companies over-ordering in 2014 and 2015 based on the narrative that the economy was actually healing, or at worse would stay in its "new normal." It raises the issue as to whether these conditions and the manufacturing recession they reflect are cyclical or structural, or both.
As I wrote yesterday, the contraction in goods and the US economy's basis for them may or may not be heading toward recession. It is clear, however, that whatever the ultimate cycle reality, there are deeper imbalances that run back several years, likely traced to decades of financialization that is now overturning, and thus really supersedes cyclical discussion. What we see in the US is not limited to the US, however; it is a global phenomenon, which can only mean one possible explanation.
Jeffrey offers several charts that I think tell the story better than 1,000 words.