It is not news that bad news is piling up.  The good news of improving corporate earnings is burdened by the growing geopolitical problems worldwide.

For the U.S., we have clearly entered a “recession” but NOT the type we fear.  It is a “growth recession,” the rate of growth is receding, not the size of the economy.  Earnings growth this year has been about 15% but is expected to decrease to 8% next year.  (Normally, we’d be thrilled with 8%, but it looks feeble compared to this year’s 15%.)  Of course, a growth recession can become a real recession.  However, except for rising interest rates, U.S. economic data shows litte sign of danger yet.  The “wild card” is the lengthening array of unresolved geopolitical problems, especially trade.  I can carry a hundred pound bag to the front door but not across town.  At some point, the relatively healthy U.S. economy will be impacted by these unresolved geopolitical problems.

Outside the U.S., I worry the outside world is approaching a “Minsky Moment.”  You will recall American economist Hyman Minsky studied how LONG bull markets end, and he compared them to a bursting balloon, as debt levels increase during a bull market until it cannot increase anymore.  At that point, it bursts, and you have a financial crisis.  The international problem is the lack of transparency.  The case of Italy is terrifying enough, even with the implicit “guaranty” of the ECB, but the seeping discoveries of so much hidden debt in Asia, particularly China, is numbing.

You can go to www.usdebtclock.org to get a huge amount of information about debt in the United States.  Similar websites are available for most European nations.  There is precious little debt information coming out of China – mostly press releases, no websites.  Recently, there has been a steady stream of leaked confidential debt information.  We used to think of China as the world’s “cash cow” but noticed their holdings of U.S. Treasuries has dropped from $1.3 trillion to less than $800 billion.

The Global Financial Crisis of 2008-9 started in the U.S. and infected the world.  I suspect the next global financial crisis will start in Asia and infect the rest of the world.  There are too few credit default swaps on Chinese companies to evaluate meaningfully.  Watch this space . . .