The world engulfs the USA

"You know, I think of the global economy as an inverted triangle, resting on the shoulders of the American consumer.  and if the American consumer cannot have enough disposable income in order to maintain a standard of living that creates more opportunities generation after generation, that's bad for everyone." - Hilary Clinton

In decades past the world was firmly in the palm of the United States' hand.  Whatever happened economically in the United States was immediately exported to the rest of the world but as recent troubles in China have shown, those days are over.  While this was always inevitable the speed at which it has happened is truly amazing and the impact on ones portfolio need to be addressed in far more of a global light than ever before.  It appears that the world has now finally engulfed the United States and the scary part of it is that as the quote above shows our political leaders have their heads deeply buried in the sand (or somewhere else far from reality).

One of the biggest issues with the current economic arena in the United States, and one that I have discussed at length in previous blogs, is the tilting of the playing field firmly in the direction of big business at the expense of small business.  For the past 50 years or more big business has employed legions of lawyers and lobbyists to drag government policy toward their side of the ring.  In addition to this politicians are no longer ordinary people bent on improving the lives of their citizens but are career political clowns.  The mix of the two has created a huge divide between the upper and lower classes and this can be seen in the frequent social unrest across the country (mostly related to police brutality and race discrimination but the aftermath gives a sense that their is more to the frustration).

As large business is now clearly in the pound seat when it comes to business laws, political control and access to capital, the effects of global problems are felt very quickly.  Back in the 90's when there was a problem outside of the United States' borders the impact was minimal for the simple reason that small business was in its prime and large swaths of the economy relied exclusively on their output.  These businesses were more immune to a slowdown or problems abroad as their market was local not global.  According to the SBA the percent of GDP related to small business in the United States has fallen from 51% to 45% since 1998 and the downward trend shows no sign of turning the corner.

Furthermore back then large business had more of its products consumed within the country's borders than outside but today with small business reeling and large business exposed across every border in the globe, crises from abroad impact the United States almost instantly.  So while the current slowdown in China may not necessarily mean a recession there it could easily export a recession to the United States for the simple reason that a large portion of United States company revenue and earnings growth has come from China's previously strong economic growth.  Add to this continued slow growth in Europe and Japan and external forces are now having a larger than normal impact on the United States economy.  As a larger than normal percent of US GDP growth is reliant on large business (55% and climbing) and the companies that make up the S&P 500 are feeling the pinch in both their revenue and earnings growth, the impact of a global slowdown is being felt very rapidly in the United States.

If the playing field was more balanced and small business was booming, the issues abroad may be contained slightly more but the greed of both policy makers and large business is now coming back to haunt the United States who will continue to struggle with economic growth and wage distortions until the structural issues that have been created over the last 50 years are unwound.  The problem is that outside of Donald Trump every candidate is a career politician with no incentive to change the rules as doing that would hurt the people changing the law - themselves!  Now while I am not a fan of Donald at least he is a breath of fresh air and while he more than likely will not win the presidency he has certainly gained the ear of the American people for the simple reason that they are fed up with more of the same.  It is a pity then that the politicians cannot see the error of their ways and start to make amends but until then expect the market to become more prone to huge swings associated more with the outside world's issues than with problems in the United States.  Time to brush up on your macro-economics as this will have more impact on the market direction than a set of good financial results.