Breaking News! Global Prosperity Is Growing

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by: Louis Navellier

By Gary Alexander

Did you hear the breaking news? Yesterday, 138,000 people rose out of extreme poverty. Another 138,000 rose out of extreme poverty the day before. And the day before that, too.

- Johan Norberg in the December 2016 issue of Spiked Review ("And the Poor Shall Rise")

Last Tuesday, Tom Friedman of the New York Times said the alleged Russian hacking of our elections was "a 9/11-scale event" and "a Pearl Harbor-scale event." On the same day, former CBS anchor Dan Rather said the Trump government's alleged links to Russia could be a greater scandal than Watergate, posting: "We may look back and see, in the end, that it is at least as big as Watergate. It may become the measure by which all future scandals are judged. It has all the necessary ingredients and that is chilling."

The two-year nightmare of Watergate caused a 40% market crash and a first-ever Presidential resignation, while World War II and the post-9/11 "War on Terror" generated a huge loss of life and treasure. Despite no solid proof that the Russians hacked one vote, we're supposed to believe this hazy event is "at least" as bad as Watergate or even a Pearl Harbor/9-11 class of disaster?

Here is some "breaking news" for these scare-mongering journalists: The stock market doesn't believe you. Most stock market indexes - including the MSCI World Index - made new all-time highs last week.

The surge in the MSCI World Index reflects a recovering global economy. At this time last year, global stocks were down on fears of a global deflationary recession. Breaking news: That didn't happen. Then, in the middle of 2016, Brexit was anticipated to throw the European economy into a tailspin. That didn't happen, either. To round out the global trifecta, the widely-anticipated collapse of major Asian economies (notably Japan and China) didn't happen either. In fact, the Purchasing Managers' Indexes (PMIs) in all four of these regions recovered sharply in the second half of 2016 and into 2017, as this chart shows:

Purchasing Manager

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

According to Greg Ip in last Thursday's Wall Street Journal ("Around the World, Economic Risks Recede"), "Evercore ISI projects annual growth in nominal Chinese gross domestic product - economic growth plus inflation - will reach 11% in the current quarter, up from less than 7% a year earlier." As for Europe, Ip quotes Jason Thomas, director of economic research at Carly Group, as saying, "Europe is much stronger in both terms of real business volumes and upside surprises on inflation than the U.S." According to J.P. Morgan, the global economy is likely to grow by a fairly healthy 3.4% for all of 2017.

As Ed Yardeni wrote last Monday (in "Good Rotation"), China's Year of the Rooster has given the bulls something to "crow" about. Specifically, he wrote, China's merchandise exports and imports (in yuan terms) rose 22.1% and 44.4%, respectively, year-over-year. Then, on Wednesday (in "Running Hotter"), Yardeni noted that the Small Business Optimism Index (charted below) rose faster than at any time since Ronald Reagan's election in 1980 and our subsequent emergence from a deep recession in 1982-83. The index rose 11 points from 94.9 last October (pre-Trump) to 105.9 in January, the highest level since 2004.

Small Business Optimism Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Breaking News: The Capital Account Surplus Hit Highest Level Since 2012

According to the weekend Wall Street Journal, "The Trump administration is considering changing the way it calculates U.S. trade deficits, a shift that would make the country's trade gap appear larger …."

This proposed change is too Byzantine to summarize here, but the basic problem with trade statistics is that they are an archaic reflection of a bygone era of mercantilism overlaid on today's complex system of globalization, which involves designing products in one nation, manufacturing parts in various nations, and assembling the final product in another nation. The whole idea of "trade deficits" needs to be retired.

On February 7th, numerous media outlets (CNBC, ABC News, Fox News, Marketwatch, etc.) headlined: "Trade deficit hits highest level since 2012," referring to last year's $502.3 billion trade deficit. As John Dessauer wrote in his hotline last week, the headline could just as easily be: "Capital account surplus hit highest level since 2012." Trade accounts, by definition, must balance. When we import more than we export, it's called a deficit, based on the centuries-old, archaic school of economics called "mercantilism," meaning (in brief) "more money is better than more goods." But when we export money to import goods, (a "deficit"), both sides win: Poor nations get more of our dollars, and we get more affordable goods.

Americans won't want to pay the lofty price tags for exclusively "Made in America" products if we shut out trade from nations with a low-cost labor pool, such as Mexico, China, and other emerging nations.

Prosperity in America depends a great deal on the world continuing to grow, which brings me back to the opening quote, about 50 million people emerging from absolute poverty each year (i.e., 138,000 per day). In the December 2016 issue of Spiked Review ("And the Poor Shall Rise"), Johan Norberg explained:

Since 1990, when social critic Naomi Klein claimed that global capitalism lapsed into its most savage form, the proportion who live in extreme poverty - according to a $1.9-a-day poverty line, adjusted for local purchasing power and inflation - has been reduced from 37% to less than 10%. At the United Nations Millennium Summit in 2000, the world's countries set the goal of halving the 1990 incidence of extreme poverty by 2015. This was met five years ahead of the deadline.

In 1820, he said, a billion people lived in extreme poverty and only 60 million (6%) lived in comfort. Today, with seven-fold more people, only 700 million are poor, so poverty is down from 94% to 6%.

The capitalist Industrial Revolution was the engine that made this escape from poverty possible, first in England, then America, then the world. China's conversion to a form of practical capitalism since 1980 has become its own belated Industrial Revolution. (In East Asia, poverty has fallen from 81% to 4%.)

Here's some final breaking news. The just-released World Economic Freedom Index from the Heritage Foundation lists two small Asian nations as "most free" while the U.S. is buried down at #17.

Index of Economic Freedom Table

Three former Soviet states (Estonia, Georgia, and Lithuania) are economically more free than America?! #1-rated Hong Kong is officially a part of "Red" China, though under the "One China, Two Systems" model. Meanwhile, America's freedom index rating peaked in 2006 and has declined in nine of the last 10 years, reaching its lowest level since the index was first published in 1995. Much of the blame, according to the Heritage Foundation, is Obama's added regulations, higher spending, and failed stimulus programs.

Meanwhile, East Asian nations are ascending the Index of Economic Freedom. As Norberg wrote:

If countries continue to grow at the rate that they have in the past 10 years and income distribution remains the same, extreme poverty would fall to 5.6% of the developing world's population by 2030. In East Asia the headcount of the severely impoverished would be at 0.3% and, in South Asia, 1.3%.

Now, that's the kind of slowly-breaking news I like to see.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.

Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.