It's a strange time right now. On the one hand there is such a sense of calm in the mainstream financial world. And on the other there is a seething, writhing pot of tension boiling away behind the scenes.
Everyone knows nothing happens in the summer time, right? “Sell in May and go away, come back after Labor Day” as they say. And that seems to be exactly what's happening. The Dow Jones and S&P have both backed off from earlier highs, as expected, and all the other economic signs point to smooth sailing and good times at the beach...according to the phoney-baloney overcooked US government stats, anyway.
Did you know wage growth is up this year, and seems to actually be accelerating? Or that housing starts hit a seven-year high in April and building permits unexpectedly jumped in May? That consumer confidence surged sharply last year and remains at the highest levels since pre-Lehman? Or that jobless claims have continued on a long, steady decline since their late 2008 peak? That precious metals are down and oil is drifting back up?
Well, you'll probably hear all about it in the financial media over the course of the summer. As Bloomberg notes, Janet Yellen predicted that the jitters from this year's less-than-promising Q1 figures were just a bump in the road, and now the data seems to be bearing that out. All things being equal, everything is looking AOK for the predicted Fed rate hike later this year.
We do know that the majority of economic stats are twisted, fiddled with, adjusted, manipulated or outright made up and seldom provide an accurate view of what's going on in the real world. And we do know that the bond bubble (the largest bubble in history) continues to grow. And we do know that China just dumped $120 billion of US Treasuries in two months. And we do know that the New York Fed is now positioning employees in Chicago in the case of some cataclysmic event during the coming Fed rate hike period.
In terms of the near future, if there is a shoe that's about to drop it would be the Greek shoe. “Grexit” is on everyone's lips this week (along with “Lehman Weekend” and even “Cyprus Weekend”) as the Eurozone prepares an emergency meeting to deal with the Greek crisis after Greek FM Varoufakis announced he would present no new proposals at a finance ministers' meeting later this week. Greece is on an end-of-month deadline for paying back a $1.8 billion IMF “loan” that it took last month to help kick the can down the road, and with no new deal even on the drawing board talk of Greece's impending Eurozone exit is ramping up once again.
Of course we have been here many times before over the past few years, and everyone knows that Europe takes most of the summer off anyway, so perhaps there is hope that some face-saving deal can be reached to help prolong the crisis till September. But even if some deal is reached with Athens this week, where does that get us, precisely? The sword of Damocles will continue to dangle over the Greek people's heads, and, by extension, the rest of the global economy.
It's a strange time right now. On the one hand there is such a sense of calm in the mainstream financial world. And on the other there is a seething, writhing pot of tension boiling away behind the scenes. I know nothing big ever happens in the summer (economically) and we're usually primed for big turbulence in the fall (a la massive terror attack and/or stock market crash and/or bubble pop). But this year there is an extra something in the air that is putting a lot of people on edge, and I don't blame them.
What will be the next shoe to drop? I can't say with any certainty, but I do know this: the global economy has probably never been so overextended and unable to resist a significant geopolitical or economic shock. Let's hope we don't find out just how precariously we're perched while everyone's on summer vacation.