Over the past several weeks it's become clear that the global economy is turning down

* Japan returned to recession last month. So did Denmark.

* Malaysia, Botswana, Ireland, Australia, Portugal and Norway all posted negative GDP growth in t...he most recent quarter.

* The euro zone, laden with insolvent countries, is growing at just 0.8 percent. And Germany, the star of the euro zone, is only growing at 1.5 percent — well below its trend growth.

* And there is an increasing likelihood that Europe is in store for a destabilizing economic shock — through a euro member sovereign debt default or a member departure from the monetary union. At best, euro-zone countries could get another extension to put off those aforementioned scenarios, through even more stifling austerity measures.

Given that backdrop, Europe could be quick to follow Japan and Denmark into recession.

As for the UK: The new coalition govt came in last year slashing spending & raising taxes in order to curtail its bulging deficit. Yet its deficit has barely budged. Nor has its economy. In fact, it's flat lined for the past 6 months — no growth. Despite all the govt stimulus, rescues, borrowing, and money printing, the economy is STILL stumbling and slumping. The job market is coming apart at the seams manufacturing is fading fast … housing is sinking again … consumer spending is on the ropes!

How about the Largest Economy in the World?
This was expected to be a great year for the U.S. recovery, many private economists were foreseeing above 4% growth — some estimates were as high as 5 %. But it's turning out to be quite different … The annualized growth for the first quarter is coming in at just 1.8% ! That's not only well below expectations, but well below the country's historical growth trend, even following unprecedented government stimulus.
That was last quarter. This quarter is looking even worse …
• The U.S. housing market is at new post-bubble burst lows, exceeding the decline marked in the Great Depression.
• Manufacturing activity just recorded the worst slide since 1984.
• Confidence has plunged to six month lows.
• And employment growth has now slowed sharply.

At Least We Have China to Lean on, Right? Not so fast.

Through the global financial crisis where more than 60 countries were simultaneously in recession, China's economy still put up solid — in some cases, eye popping — growth. Of course, it took the largest fiscal stimulus package in the world (relative to GDP) to produce that growth. But it was in China's direction where the rest of the world looked, to spearhead a global recovery.

Don't expect China to prop up the global economy during the next recession.
This time, this downturn, China won't be there to open up the spigot of money on its economy. Nor will China have such easy money to spread around the world. Its economy is already overheated. That's why the Chinese have been in a fight to shut the spigot and mop up the money. And it's proving a difficult fight.

Moreover, this time a recession would be accompanied by a sovereign debt crisis that could make the fallout that followed the failure of Lehman Brothers look like just the opening act.

But the next wave of economic pain shouldn't take anyone by surprise. In fact, history shows us it's exactly what we should be expecting following a widespread synchronized global financial crisis and global recession … more booms, more busts, more shocks and a long bumpy road to recovery.

In sum: If the recent data is truly signaling another round of recession, and if the crisis in global sovereign debt does, in fact, play out according to history (i.e. defaults), then expect this round of economic downturn to be worse than the first. After all, the global government ammunition that created the first technical recovery has been all but exhausted.

With that scenario in mind, the answer on whether global investors should be in "risk-on" or "risk-off" mode is pretty simple.

 

Emerging Markets Are Looking Weak !

There are far reaching negative divergences on a global scale. Most emerging markets stock market indices saw their cyclical highs last November. Their charts are not only showing clear relative weakness, ...but well-formed potential topping formations have also developed.
Emerging markets were first to bottom out during the last bear market. And now they may again be ahead and leading the way into the next global bear market.
This is not the time to be in stocks. The market is at least 40% overvalued and the macroeconomic picture is deteriorating quickly.