There's a new meme going around that claims that we're heading into a global economic slowdown. It sounds a lot like the other dire warnings that we heard in February, May and most recently in June right after the Brexit vote: "Slowdown! Crash! Recession! Catastrophe!" But the fearmongers were wrong then, and I believe that they're wrong now.
Granted, the global economy isn't growing very rapidly. But it is growing -- and has defied all expectations of a recession so far because we continue to see high and rising levels of fiscal stimulus from the world's major economies. That means the United States, China, Japan and very soon even the European Union (I predict).
There are two reason for this. First, policymakers are finally starting wake up and realize that monetary policy alone isn't effective. For example, Japan is seriously talking about deploying so-called "helicopter money." That's where the Bank of Japan would finance increased government deficit spending. We'll get more clarity as to whether this is going to happen when the Bank of Japan wraps up a two-day meeting on Friday.
The other reason to expect more fiscal stimulus is that increased spending is simply happening automatically as baby boomers at home and abroad begin to swell the rolls of government retirement programs like Social Security.
All told, there's nothing in the fiscal data that I look at every day that shows even the slightest indication that things are slowing down. Nothing.
Now, the stuff that I look at is all leading data -- not quarter-old figures or month-old ones, but daily numbers covering total U.S. government spending, federal tax deposits and total employment- and withholding-tax deposits. There's not a stitch of evidence in any of these things that shows that we're slowing down fiscally.
I mentioned earlier the market swoons that we saw in February, May and June, but those mainly affected stocks. This time around, we're selling sell-offs in commodities like oil, which has fallen to a three-month low.
Why? No reason. In fact, we've seen nine consecutive weeks of drawdowns in U.S. inventories even as the count of rigs in operation has been rising. That's just something to think about.
How about gold? Well, gold has been selling off recently because some precious-metals investors are apparently scared of a U.S. rate hike. But I welcome it, just as I welcomed the hike last December. After all, what followed that was nearly a 30% jump in gold prices.
Grains? They've fallen recently even though we're only halfway through the crop-development period for corn and soybeans and lot can still go wrong (especially with the heat that we're seeing in some U.S. areas).
In fact, what strikes me the most about falling commodities prices is that the only thing that everyone is pointing to is supply -- too much oil, too much wheat, too much corn, too many soybeans. No one's talking about demand.
But if you want some insight into demand, just look at the recent slew of better-than-expected U.S. corporate earnings announcements. Or look at the improving data on U.S. housing starts, homes sales, etc.
Also look at what analysts expect will be a near-doubling in U.S. gross domestic product growth during the second quarter when compared to the weak activity that we saw in the past two three-month periods. That ought to tell you something about demand -- it's going to be stronger than the forecasts predict.
So, commodities are what's taking the hit this time around on the false meme of a global slowdown. And just as the correct thing to do was to buy equities on those "fake-out" dips earlier this year, buying commodities on today's fake-out is the right move now.