An Urban's Rural View

By the time you read this, markets may have calmed down. Then again, they may not have. The scary volatility we've been seeing could well be with us awhile.

Wall Street was down more than 3% Friday and is now 10% off its highs in May. (It was down another 4% Monday). Oil fell 2.5% metals collapsed, and the damage spilled over into cattle and hog prices. The Vix, which measures volatility, rose 46%. Is this the start of something big?

Probably not. A rerun of 2008 doesn't seem to be in the cards. But that doesn't mean the immediate future looks pretty.

If greed and fear are the two main movers of markets, uncertainty ranks a close third. As investors scan the global economy, they see a lot to be uncertain about.

The big worry is China. While the country represents only 15% of the world economy, it has been providing 50% of the world's growth. China's slowing economy and stumbling stock market have spawned worries that its captains aren't up to the task of righting the ship. Compounding investors' unease, other developing countries are teetering, too.

Unlike 2008, this is an economic swoon, not a financial meltdown. Reigniting growth isn't easy, but it's easier than bailing out banks and dealing with the aftershocks of a financial crash. In the U.S., at least, corporate profits and the economy generally are still growing. While it's possible our stock market will venture into bear market territory, it's also possible we're experiencing a bull-market "correction," a pause before heading up again.

Commodities are more vulnerable to the developing-world demand downturn and cascading currency devaluations. What the China boom giveth, the China bust taketh away. That's especially true for oil and metals, but agricultural commodities are also at risk. Yes, people have to eat, and yes, China can still afford to import edibles. But who really knows how much has been stockpiled?

And who really knows how seriously to take the rumblings of a leadership struggle in Beijing? The New York Times reports that in the past two weeks, "Two leading official news outlets have published unusual editorials hinting at internal turmoil (http://tiny.cc/…)." President Xi Jinping, it seems, is using the government-controlled media to fire warning shots at powerful critics of his economic management.

In a political system as opaque as China's, it's impossible for outsiders to know what's going on. But something clearly is, and that has to jangle investors' already frayed nerves. Meanwhile, there are no signs yet of a Chinese economic turnaround.

It all adds up to continued fear, continued uncertainty and the possibility of continued market volatility.

Urban Lehner can be reached at urbanity@hotmail.com

(CZ)

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