“GDP Growth Driving Rates Higher!” – Is That True?
“Peter Cook is the author of the‘Is That True?’ series of articles, which help explain the many statements and theories circulating in the mainstream financial media often presented as “truths.” The motives and psychology of market participants, which drives the difference between truth and partial-truth, are explored.”
Summing up the current conventional wisdom:
- Global GDP growth has bottomed and is accelerating systematically higher,
- Which will cause the inflation rate to accelerate higher.
- Bond markets hate higher inflation, so interest rates have bottomed and will move even higher.
- The stock market, dependent on low rates for high valuations, will fall if rates move higher,
- Which is why the stock market peaked on January 26, 2018, and then declined dramatically,
- Ushering in an era of systematically higher volatility
In this article, we will investigate the data behind the first three assertions related to GDP growth, inflation, and the bond market and offer explanations that differ from the conventional wisdom. Next Friday, we will continue this theme with a discussion of the following three assertions.
- Global GDP Growth Is Accelerating
Unless GDP can be exported from another planet to Earth, the main drivers of global GDP growth are in four large economic zones. Here are the past 30 years of GDP growth in the U.S……
The past ten years in China……
The past 20 years in Europe…..
and Japan.
In summary, each of the main economic zones are growing at lower rates than they did 10-20 years ago. While they are each trending slightly higher after bouncing off recent troughs in early 2016, all are well within a range established since the Global Financial Crisis (GFC).
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