Could this be the start of something big...and nasty?

Recession Clouds on the Horizon

Did anyone notice? The dollar has gained 32 percent against the Euro in the last 9 months. In June 2014 you had to shell out $1.40 for one Euro. Today, you get the same Euro for just $1.07. So what is the big deal? For starters, if you have been planning a trip to Europe, now would be a good time to go. Your Yankee dollar will go a lot farther now than it has in a very long time all over Europe. If you had budgeted $10,000 for your trip last year, now you will only have to pay $6,800 for the same set of expenses. In fact, the dollar has made gains against most of the world’s currencies, and that means that imports into the U.S. are a lot cheaper today than they were last year. So we all benefit.

But, of course, there is a downside. The products that we ship to various parts of the world now cost all those countries a lot more. That means they are buying less, and that is not good for corporate profits and corporate earnings. And reduced profits and earnings at home nearly always mean lower stock prices. And since oil is denominated in dollars, our trading partners will have fewer dollars for oil purchases. And that means OPEC is now planning to fill oil pipelines with less and less oil. And that means the price of oil is very likely to start rising very soon.

As these changes are being transmitted throughout the U.S. and world economies, we are likely to see reduced growth, fewer new jobs, lower stock prices, and…perhaps the stock market bubble will burst and prices will plunge like a rock here and around the world. And before the dust is settled, the industrialized world could find itself in the dreaded “r” word—a recession.

Those are not my calls. A more reliable source is the Financial Forecast Center. By August 2015 they see a 20 percent drop in stock values around the world, oil prices rising to $73/barrel, real GDP growth near 0, unemployment rising to 6.2 percent, and retail sales falling to -0.7 percent. I don’t know what they are forecasting beyond August 2015. They will only let nonsubscribers (like me) see a little. But there is another former CIA analyst, Jim Rickerts, who is predicting a 70 percent retrenchment in stock values, a $100 trillion collapse in U.S. wealth, and major shifts in assets all over the world.

The key to these outcomes would appear to be falling U.S. corporate earnings. Standard and Poors sees negative growth between now and the end of 2015. That could be the start of a long line of falling dominos.

Enjoy your European vacation…