Tom’s grandparents haven’t seen him since last Christmas and in the space of twelve months, he’s grown one foot! They’re speechless.
Not surprisingly, Tom is getting heaps of attention from his relatives at Christmas lunch about how much he has shot up in the past year but inwardly, Tom’s not so excited.
You see, Tom’s only five and half feet tall while most of his mates on the basketball team at school are six feet. And unless he reaches six feet, he knows he will never be on the run-on side. He’ll always start on the bench watching his mates get most of the game time.
But Tom has another concern. When he looks around the table, he notices most of his relatives are a similar height to him…none of them have reached six foot.
But no one’s talking about that. Instead they’re just talking about how much he’s grown in the past twelve months.
Wall St
Right now, the markets are going through the same thing as Tom’s family, especially Wall St (US markets).
The commentariat keep talking about the stunning growth rates we’re witnessing in the economy.
However, I think there’s a very important distinction that’s being overlooked by too many people.
And the distinction is this…
Let me give you two examples.
Two weeks ago the US reported jobs growth of 2.5 million jobs for the month of May [1] which is pretty impressive, right?
However, the US still has an unemployment level of 13.6% which is higher than at any time during the GFC in 2008/09.
Here’s another example. China has recovered to 90% of where it was pre-COVID 19 which is a stunning turnaround. [2]
However it’s still 10% short of where it was at the beginning of the year…which is massive.
Right now the markets are infatuated with growth rates without giving a lot of attention to actual levels.
The problem is the markets and their economies are coming off very low bases which gives the impression they’re achieving spectacular growth rates. But the reality is it’s very easy to achieve ‘record’ growth rates when you start near ground zero.
It’s much harder to achieve good growth rates near the top.
And that’s Tom’s next challenge. It’s easy for a teenager to grow from four and a half to five and half feet tall. But not so easy to reach six feet.
And looking around the table, he may never achieve that. And if he does, it could be a long time.
World economies are currently facing the same intractable situation.
Commentators are talking about how quickly economies have grown from infant to teenager in such a short space of time, especially after being in lockdown.
But if they can’t grow that final half a foot into adulthood, then we’ll be a long way short of ‘normal’ for some time.
And normally, that wouldn’t be such a problem except for one thing. The markets are trading as if their economies are ten feet tall!
Someone’s in for a big shock.
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