Green Shoots?

Federal Reserve Chair Ben Bernanke has coined the phrase ‘green shoots’ to describe signs of an economic recovery whenever positive economic news is heard.

Is he right?

Are the green shoots he sees really signs of an economic recovery?

Not in my opinion. Instead of green shoots, I believe the Federal Reserve Chairman is grasping at green straws. In John Mauldin’s most recent newsletter dated June 22, he makes some very interesting, and admittedly scary, observations; however, I believe Mr. Mauldin’s interpretations are correct.

Mauldin comments that there have been a number of economists who are making comparisons between the current recession and the Great Depression with many coming to the conclusion this recession is far milder than the Depression due to the fact US industrial production hasn’t fallen as far this time around. Mauldin notes, correctly I believe, that the Great Depression was a global event, and if a correct comparison is to be made, global industrial output must be measured.

Source: Eichengreen and O’Rourke (2009) and IMF.

In the chart above, Mauldin compares world industrial output then (during the Great Depression) and now; note the decline today tracks the 1929-1930 decline very closely.

Mauldin also compares world stock market performance with the performance of world stock markets in 1929-1930. When market performance is analyzed globally, it’s easy for many to reach the conclusion markets have fallen even more quickly now versus then. Note the chart below:

Finally, Mauldin compares world trade then and now. It’s disturbing given the fact much of the historical blame for the Great Depression came from declining world trade. We now seem to be following the same path.

Sources: League of Nations Monthly Bulletin of Statistics, http://www.cpb.nl/eng/research/sector2/data/trademonitor.html

According to Mauldin, world trade is falling even faster today.

So what does all of this mean?

You can be the judge, but it is my opinion there just may be more downside to come.

Those wise folks who are raising cash on rallies and utilizing an absolute returns* style of money management just keep getting wiser.

To obtain my quarterly market update, click here:

www.usawealthmanagement.com

Securities offered through USA Advanced Planners (Member FINRA/SIPC). Advisory services offered through USA Wealth Management. USA Advanced Planners and USA Wealth Management are affiliated companies. The opinions expressed herein are those of the writer and not necessarily that of the above noted affiliated companies. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Due to the fact that some of the information was obtained from third party resources, it cannot be guaranteed.

*Absolute return portfolios ideally look to generate positive returns whether the overall market is up or down. No investment strategy is 100% accurate. Investing in market related securities involves a risk of principal loss. Prior to making any investment decision, the services of an appropriate professional should be sought as investment related recommendations are dependent upon the personal financial situation of each individual investor.