Don't look to the major market indices to get a sense of the global economy. The Dow Jones Industrial Average (DJI) and the S&P 500 Index (GSPC) are headed toward multi-year highs and both have posted gains of 8 percent or more since January. This discord between investor sentiment and the current macro outlook has strategists like Chris Martenson confounded.
"It's almost inconceivable at this point that we're not seeing some money off the table," Martenson says in an interview with The Daily Ticker. "Markets don't always move in sync with the economy [but] we have a global slowdown right now…and there seems to be a lot of risk out there."
Martenson, the CEO and co-founder of the website PeakProsperity.com and the author of "The Crash Course," says he expects coordinated global intervention by central banks to jolt the depressed economies of the U.S., China, Japan and Europe, going so far to say "we need something larger than we've seen before."
Eurostat, the European Union's statistics agency, reported Tuesday that the euro zone economy contracted in the second quarter, falling 0.2 percent from the previous three months. Most economists believe that the 17-member region has already entered a recession.
Meanwhile, economic growth in Japan slowed to an annual rate of 1.4 percent in the second quarter compared to 5.5 percent growth in the first quarter of the year. U.S. gross domestic product grew a modest 1.5 percent in the April to June quarter. And China — the world's second and fastest growing economy — has experienced six consecutive quarters of slower growth prompting concerns that the country is headed for a hard landing.
The rise in global markets has partly been a response to expectations that the Federal Reserve and European Central Bank will take more aggressive action — i.e. quantitative easing — this fall to prevent further economic deterioration. The Federal Reserve did not take new steps to boost the U.S. economy at its August policy meeting but said it "will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability." ECB Chief Mario Draghi excited markets in late July when he vowed to do "whatever it takes" to save the euro but a week later softened his tone, proclaiming his bond buying comment was merely "guidance." Investors around the globe later dumped stocks.
The interminable guessing and conjecture about central bank action has caused hedge funds, institutional and retail investors to become speculators, Martenson says. Professional money managers have publicly acknowledged their own difficulty picking stocks. Hedge Fund titan Louis M. Bacon has decided to return $2 billion to investors after his Louis M. Bacon Moore Capital Fund was down 2 percent in 2011 and flat for the year.
Martenson's investment recommendations range from the conventional (he's a buyer of gold) to the unorthodox.
"One of the things we counsel people to do is consider investing in your own homestead," he says. "Plugging all the leaks" in your house yields a 10, 12 or even 18 percent return on investment by cutting the homeowner's heating and energy bills, he notes. "This is a time you have to consider other places for investments," he adds.