Approximately 15-16 years ago the prevailing view on Wall Street is that the business cycle was dead. The global economies had entered into a New Paradigm where this newly created multipolar interdependent world would make war and conflict prohibitly expensive under the simple guise that economics is the primary motivation of behavior. The purse is more powerful than the gun. Valuations skyrocketed partially upon this view.
In many aspects those who did not accept this view were treated in the same manner as those who today don’t ascribe to climate change…excoriated and belittled, viewed as ignorant or uneducated.
Then came 2000 and the approximate 78% NASDAQ 30 month decline. A decline partially predicated upon the immorality of mankind, where narcissism, nationalism and fanaticism proved greater than national economics. In other words, human nature took its normal path.
Fast forward to today. As noted many times approximately 47% of the S & P 500 revenues and 49% of its profits are from international trade. Trade is about 27% of the US GDP.
About a year ago the US publically abdicated its 70 year unspoken role of the global policeman, a role whose primary function was to foster US economic and political interests.
In my view, this abdication will impact the economy, impact all whether living in Des Moines or New York, Main Street or Wall Street, as our economy is interdependent upon others. The multipolarity is great.
At this juncture, the continuing collapse of regional global order is just great headlines, a collapse that has not yet overly impacted global economic activity, a view supported by the performance of the world’s equity indices.
But in my view, the longer global leadership is absent, the greater the odds of a global power vacuum will occur, a vacuum that will have a global economic impact.
Did the President act “Presidential” when he ordered very limited bombing in Iraq? Is the Administration finally exhibiting global leadership?
I will let the pundits answer this question and will write equities rallied substantially Friday as there appeared to be some easing tensions in the Ukraine and action finally taken to perhaps slow the jihadists. Equities were also buoyed from better than expected earnings.
Treasuries closed almost unchanged after an earlier “flight to safety” rally.
This week’s economic calendar is busy. Data released includes retail sales, business inventories, inflation and manufacturing data as well as confidence surveys. How will these statistics be interpreted?
Last night the foreign markets were up. London was up 0.70%, Paris up 0.82% and Frankfurt up 1.50%. Japan was up 2.38%and Hang Sang up 1.29%.
The Dow should open moderately higher on Ukrainian optimism and US action in Iraq which some are saying the US is finally showing some global leadership. The 10-year is off 3/32 to yield 2.44%.