• by Thom Forbes  @tforbes, October 13, 2014

The Dow on Friday plunged into negative territory for the year less than a month after setting a new record high but a Wall Street Journal article casting a lens on the global economy tells us that the U.S. “remains a relative bright spot in an otherwise gloomy picture.”  

That’s little solace for anyone selling abroad, of course, and domestic repercussions from global distress remain a troubling unknown.

“Slumping exports in Germany are adding fuel to worries about a third recession in the eurozone in six years,” write the WSJ’s Ian Talley, Brian Blackstone and Raymond Zhong. “China is slowing in the wake of its credit boom, weighing on countries throughout the region. Japan’s economy has recently contracted despite a policy offensive to lift it from years of stagnation. Other onetime powerhouses, from Brazil to South Africa, also are struggling.”

Growth in emerging markets is also bleak as a consequence, report the Financial Times’ James Kynge and Chris Giles, with “data from 19 large emerging economies collated by research firm Capital Economics [showing] that industrial output in August and consumer spending in the second quarter fell to their lowest levels since 2009.”

“This is the new normal,” Neil Shearing, chief emerging markets economist at Capital Economics, tells the reporters. “For the rest of the decade, this is it. This is as good as it gets.”

The focal point of all the hand wringing was the annual meeting of the International Monetary Fund and the World Bank Group in Washington, D.C., with government finance chiefs, global bankers, executives and academics exchanging dire statistics and predictions.

“‘A sudden shift in sentiment could easily cascade across the entire globe,’ IMF Managing Director Christine Lagarde told the fund’s governing board,” report the WSJ’s Talley, et al. “‘There is too little economic risk-taking, and too much financial risk-taking.’”

And the IMF is notoriously optimistic in its forecasts, as Robert J. Samuelson points out in an opinion piece in the Washington Post, as befits an organization that is responsible to 188 member countries. 

Samuelson tracks three issues that play out differently around the world but, in the end, wind up reducing demand:

• the hangover from the 2008-09 financial crisis;
• the legacy of global trade imbalances in the 1990s and early 2000s; 
• the cost of maturing welfare states as Boomers enter retirement.

“The IMF panel urged nations to carry out politically tough reforms to labor markets and social security to free up money to invest in infrastructure to create jobs and lift growth,” write Reuters’ Krista Hughes and Leika Kihara.

Meanwhile, they report, “top officials from the U.S. Federal Reserve highlighted growing risks, with the central bank's No. 2 [Stanley Fischer] saying the global slowdown could delay plans for a U.S. interest rate hike.” 

The good news, perhaps, is that things won’t get as bad as they might.

“Still, the Dow is down only 4.3% from its record in September. While many money managers worry that the volatility isn’t over, few expect a bear market, meaning a decline of 20% or more,” observes the Wall Street Journal’s E.S Browning in a recap of the “tumultuous” week as the U.S. markets reacted to the stream of bad news from overseas. “So far in 2014, the Dow has slipped 0.2%.”

And the New York Times’ Landon Thomas Jr. concludes his coverage of all the doomsaying emanating from the IMF by pointing out that “for some observers … the debate about asset bubbles and what central banks should do about them misses a crucial point. An increase in interest rates by the Fed, assuming it happened because the American economy was in full recovery mode, would be a positive sign, they say — not just for the United States but also for global financial markets in general.”

“Interest rates are going to go up in 2015 — why are the markets getting all whipsawed?” said James P. Gorman, chief executive of Morgan Stanley, speaking at a luncheon conference on Friday. “Rates are going up because the U.S. economy is doing better — and that is a good thing.”

If only people believed it.

“The biggest sales job in the US: Obama and Ben Bernanke try to convince America the economy is good,” reads the hed over a piece by Jana Kasperkevic in The Guardian. But as the President admitted earlier this month in a speech touting job growth, “it’s also indisputable that millions of Americans don’t yet feel enough of the benefits of a growing economy where it matters most — and that’s in their own lives.” 

“The message seems to be that a good economic recovery won’t come into existence from spinning a positive narrative or selling a good story,” Kasperkevic concludes. “…. Stop selling, Americans seem to be saying, and start doing.”

What? Selling isn’t doing?