Maybe the politicians are starting to get the trouble we are in. We are hearing rumblings out of Germany and China that their leaders know that stimulus might be needed.
That's a beginning. And it's a reminder that these two countries, which are among the most solvent, recognize the high stakes that are being played out right now.
Remember, there are a multitude of things going wrong now and many concerns worth fretting about. We have to worry about Ukraine vs. Russia and ISIS, which is constantly advancing, taking territory and capable of unspeakable acts. There is also a heightened security issue in North Korea, which has never been anything but a state that has endlessly blackmailed the West into submission with its nuclear weapons pointed toward the south. In addition, the Ebola virus is spooking the world right now, as containment nowhere in sight and politically correct leaders seem unwilling to make tough decisions to protect the country's citizenry. We don't know how far-reaching Ebola can be.
The slowdowns in Europe and China are playing havoc with the earnings of so many companies. Just this morning, we learned from Microchip (MCHP) that the seasonably strong month of September in China turned out to be unseasonably weak. It was a jaw-dropping event given the broad breadth of the semiconductors Microchip makes. Go to the website and you can see that its chips go into every device known to man.
We are used to companies such as Caterpillar (CAT) and Joy Global (JOY) being disappointed by Chinese orders. We know that the iron and copper companies dramatically overexpanded years ago to meet Chinese demand that has now failed to materialize. We get the fact that China's using more oil but not as much as we thought it would.
But semiconductors? Heaven forbid, China is a huge consumer of chips from companies as diverse as Xilinx (XLNX) and everywhere between. That has been an area of strength, which was left pretty much unscathed by the rolling bear markets in commodities, machinery companies, oil and gas businesses and the vast panoply of industrials involved in chemicals, paper, electronics, aerospace and automobiles.
This week that the Federal Reserve acknowledged that European weakness and a strong dollar could slow our economy. I wish they had also said the decline in oil prices, but that breathtaking bear market has occurred so quickly that it wasn't covered by the last month's meeting and, therefore, wasn't in the minutes. We also know that European Central Bank (ECB) President Mario Draghi is doing everything he can to try to pull Europe from the brink of a recession.
But until today, the Chinese leadership and German Chancellor Angela Merkel seemed complacent in the wake of the world's negative turn.
To me, their acknowledgement of weakness is worth, well, acknowledging. It led to the anemic rally we are getting even as much of it is concentrated in the same old blue-chips that have no economic sensitivity. They can rally, though, because they are bond market equivalents with dividend boosts coming, not dividend cuts which is now the prevailing wisdom for the industrials and the master limited partnerships (MLPs). The latter are being hurt further by the sense that all will need additional financing to finish projects which means more dilutive equity offerings.
So it's a step in the right direction and better late than never. But we should never, particularly in the case of Merkel, have gotten this far down the path of weakness -- unless she truly wants to inherit the mantle of President Herbert Hoover, who was tightfisted when "loose as a goose" was most warranted.