Investor Alert

New York Markets Close in:

June 27, 2022, 7:42 a.m. EDT

Four of the five fingers of death are squeezing world output, economist warns

By Steve Goldstein

One of Quentin Tarantino’s favorite movies is entitled the “Five Fingers of Death,” a 1972 Hong Kong feature that popularized the kung fu genre.

Carl Weinberg, chief economist at High Frequency Economics, says, at the moment, four of the five fingers of death are squeezing the global economy. Weinberg says he expects a substantial recession starting this year, running into early next year.

The four fingers squeezing the world economy are the spike in energy and food prices, central bank tightening, the interruption of energy supplies to Europe and frothy financial markets.

The rise in energy and commodity prices can be seen in the deteriorating trade balances of Germany, Japan and the U.K., he said. Weinberg also says interest rates will end up a lot higher than where central bankers expect they will. And Russia has cut back shipments of natural gas to Germany. “An embargo of gas shipments from Russia would kill Germany’s economy and take out much of the Euroland economy, too,” he says.

Weinberg says sterling (XTUP:GBPUSD) will be at risk when the latest current account data from the U.K. gets released on Thursday. He expects a £46 billion deficit will be announced.

As for frothy markets, they’ve already started to correct: The S&P 500 (S&P:SPX) this year has dropped 18%. The yield on the 10-year Treasury (XTUP:BX:TMUBMUSD10Y) has surged 163 basis points, while bitcoin (COINDESK:BTCUSD) has lost 54% over its value.

The only “finger” that isn’t squeezing, so far, are supply-chain gaps in wake of China’s lockdown policies. “We are going to wait and see if exports fall off in the months ahead. It is possible that goods shipped during the lockdowns were merely cleared out of inventories, not newly produced,” he said.

Link to MarketWatch's Slice.