It should concern you that the volatility index the VIX has reached a ten year low with stocks at all time highs. This should be indicative of a world economy whose growth rate is on the move significantly higher. That at least would justify this kind of irrational exuberance in the stock markets.
In fact the quite the opposite is true regarding the two most important engines for global growth and the dual largest economies on the planet. Just last week, we learned that the growth rate in the United States surprise-slowed to less than the level of inflation.
While economists had hoped for a decent but still slow 1.2 percent U.S. GDP growth, they instead got a mere .7 percent growth for the first quarter of 2017. This contrasted with a 2.1 percent U.S. GDP growth out of the fourth quarter. It shows that American economic growth has declined by an eye-watering 67 percent in only a single quarter.
Yet this abysmal American growth rate that is currently around a third the annual rate of inflation is only half of the disturbing economic story. Now that the French have drop kicked their proverbial troubled political-economic football down the road for five more years, investors have suddenly awakened to the dangers that are now evident in the world’s second largest economy, China.
If you know much about the largest economy in Asia, then you realize that its growth rate is typically over 7 percent. In fact, the world’s second biggest economy is actually its most important engine of growth. China’s typical annual GDP growth is commonly around three times as much as that of the United States. This makes it extremely important for your portfolio of either international or domestic retirement assets and investments.
Only last week, the PMI manufacturing data from China demonstrated signs of weakening and slowing. Yesterday’s Chinese trade data also came out weaker than analysts had forecast. It suffered significant misses in both exports and imports.
Economists and investment strategists have started to voice their concerns about the dangers to the markets of a Chinese slowdown. Charles Schwab’s Chief Global Investment Strategist Jeff Kleintop warned:
“I’m more concerned about the risks stemming from a China slowdown. Some of this might be some warning signs that China could be the next thing that would throw the market a curve ball. The government has slowed down on infrastructure spending, thinking private sector spending would pick up and offset it. I’m just worried rising interest rates, tighter conditions, and some new down payment requirements could nip that in the bud.”
Global markets are already reacting to the evident slowdown in the Chinese economy too. Commodities sold off across the board on the worries. Copper, known as Dr. Copper for its prescient ability to predict economic downturns and stock market declines, dropped three percent just last week on fears over China. It fell another 1.4 percent yesterday. Other industrial-use commodities are also sounding warning alarms as they decline alongside the Chinese economy, which the chart below shows:
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Dr. Copper is flashing you warning signs about the state and likely future of the markets. Stocks have been rising for so long without the U.S. or global economic growth to back up the advances that there is now a total detachment from reality in the equities markets. This is the epitome of what long-time revered Fed Chairman Alan Greenspan memorably named “irrational exuberance.”
Should the Chinese and U.S. economies continue to lose steam, commodities will keep selling off. This will be the writing on the wall that will negatively spread to the other markets. Gold is your surest anchor in the stormy financial markets and economic setbacks that trouble the world every less than ten years on average. Click here now to get your free and no-obligation rollover kit from the gold IRA industry-leader Regal Assets. In it you will have all of the information necessary to safeguard your retirement portfolio by implementing a partial diversification of your retirement accounts into physically held tangible gold.