Sunday Musings: A Slowing World

MarketWatch featured an article titled “Is the whole world slowing?” Here are some highlights:

Europe’s economy contracted in the second quarter, burdened by higher prices and weak export markets, the statistical agencies reported Thursday.

With Europe now joining the United States, Japan and Canada in the dumps, none of the Group of Seven economies is growing anywhere close to their potential.

China and other developing economies are also slowing, mostly because of high energy and food costs, but also because their export markets are weakening.

The slump in global growth hasn’t escaped the notice of commodity and currency traders. Oil is down and the dollar is up, a necessary corrective that could gain steam if Europe and Canada cut interest rates.

So much for the theory that the global economy has “decoupled” from the United States. It’s still true that when America catches a cold, the rest of the world sneezes.

[Emphasis added]

My viewpoint is exactly the same, and I have many times commented that we are living in such an intertwined global environment that there is no place to hide. What I mean by that is that no country is exempt from a major economic downturn. While some countries or regions may be affected on a delayed basis, ultimately everyone will end up sneezing as well.

It appears that my international Trend Tracking Index (TTI) has been the leading indicator for the past 9 months, when it signaled a “Sell” on 11/13/07. Its composite consists of widely diversified international funds, which are a good representation of the world as a whole. While some countries have temporarily been able to buck the downtrend, everyone has now joined the crowd with most momentum numbers for country ETFs now having moved solidly into the red.

Based on the International TTI being in bear market territory by -7.08%, and the domestic TTI having recovered to -0.56%, it would appear that the U.S. market is poised to take the lead if and when the current bear scenario reverses itself.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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