Global Confidence Rollercoaster Hits Downdraft


I used the analogy of this amusement ride yesterday to describe our global economy and markets. A day at Six Flags seems far more appealing than the continued twists and turns of our global economy. Today, the riders on our global economic rollercoaster indicate they see further downward motion with hard twists and turns ahead. Bloomberg surveyed close to 2,500 ‘riders’ the first week in February and reports, Global Confidence Ebbs on Concern Budget Gaps Will Hurt Rebound:

Confidence in the world economy dropped in February on concern worsening government finances in some European nations will derail the global recovery, according to a Bloomberg survey of users on six continents.

The Bloomberg Professional Global Confidence Index dropped to 54.9 from 66.6 in January, when the reading was at the highest level since the series began two years ago.

What drove the 20% decline in this reading? In one man’s opinion:

“People aren’t concerned about the exit strategies from countries, they’re concerned about the total debt level,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York.

I find that comment a little suspect. Total debt levels have not changed appreciably. They merely have not gained focus given the rising asset levels driven by government stimulus, which is nothing more than increased debt.

Keep your seat belt fastened. What else do we learn?

The fallout from the budget crisis in Greece has led investors to become the most bullish on the U.S. dollar since November 2008. The dollar confidence index rose to 55.7 from 53.1 in January.

The U.S. Dollar Index is up approximately 3% on the year. Further appreciation of our greenback will put those who are short dollars via the dollar carry trade firmly in the ‘pain chamber.’ Envision the financial equivalent of the bends.

What are the confidence levels for specific geographic regions?

The confidence gauge for Western Europe fell to 49.8 from 55.5 last month, dropping below 50 for the first time since November.

What about our home turf?

A measure of U.S. participants’ confidence in the economy fell to 41.3 this month from 54.4 in January.

Ouch!! That reading is close to a 25% decline. Little doubt why the crowd in Washington is feeling increasing heat from the electorate. Why are Americans increasingly despondent?

“It’s a jobless recovery,” said Jonathan Basile, an economist at Credit Suisse Group AG in New York and a regular survey participant.

Is it any surprise that confidence is always a reflection of employment? With the U-6 still in the high teens and likely to stay there, this reading should not surprise.

Let’s look eastward.

Asia’s index fell to 70.8 in February from 79.8.

A 10% decline but still much stronger than other regions. However, not all Asian countries are enjoying this ride:

The confidence gauge for Japan dropped to 40.6 from 44.1.

How is the global confidence decline reflected in outlooks for global equity markets and interest rates?

Most Bloomberg users were less optimistic on the outlook for their equity markets in the next six months, with respondents in the U.S., the U.K. and Spain turning bearish. Survey participants in the U.S. and Europe remained confident short-term interest rates will rise in the next six months, the survey showed.

I knew there was a reason why I do not like rollercoasters. This Bloomberg survey just gave me several more reasons.

Keep those seat belts fastened.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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