Say It Ain’t Slow

The whole world was downgraded by the International Monetary Fund (IMF).  Does that matter? Perhaps we should first consider what the IMF is.  It is an international organization headquartered in Washington D.C. that was founded in 1945 after the Bretton Woods Conference which was held as World War II was ending.  Initially, it was created to provide assistance during temporary imbalance of payments between countries, organizing monetary relations among sovereign nations. 

Since then, its role in global trade has grown, and it oversees a number of other international financial relationships.  The IMF has its resources spread across the globe as it tries to keep commerce humming between nations.  Its perspective on the world economy is unique.  Unfortunately, its most recent analysis of the world’s output growth suggests slowing is ahead. 

Virtually nobody seems immune to the deceleration either.  Advanced economies were downgraded in their forecast.  They expect the euro area to be affected by production and export issues in Germany as well as further sovereign and financial risks in Italy.  Here at home, they expect the impact of last year’s fiscal stimulus to fade, causing further deceleration this year and next. 

Emerging and developing economies are expected to slow as well.  They list a large contraction in Turkey and significant slowing in Mexico as causes for this expectation; they anticipate a substantial slowdown in business investment from our southern neighbor.

However, they are quick to reiterate that the development of the next global recession is not likely. They are only expecting slowing growth. Organizations like the IMF or the Federal Reserve are naturally painted into a corner when it comes to forecasting.  If either were to start calling for the next economic contraction, it is hard to imagine one not materializing.  In other words, consumers and businesses would likely start behaving as they would within a recession in order to get out ahead of the business cycle's decline, thus hastening the downturn.

According to Yogi Berra, “It’s tough to make predictions, especially about the future.” Atlas uses this quote from time to time because we agree with the slugger.  There’s no way of knowing what shape the trillions of variables in the global economy will take when they congeal in the future, and we are comfortable with that. That comfort is required in order for us to observe what is happening in markets rather than try to predict what should happen in markets.  Just like Yogi, we believe “you can observe a lot by watching.”  Our approach to markets is an exercise in observations, not predictions.