Wall Street Greek: The Gray Area of Global Economic Decoupling

(Stocks in article: NYSE: WMT, AMEX: SPY, AMEX: DIA, Nasdaq: QQQQ, Nasdaq: XMSR, NYSE: FRE, NYSE: CVC, NYSE: S, Nasdaq: SHLD, NYSE: SFD, Nasdaq: YHOO, Nasdaq: GOOG, NYSE: TMA, NYSE: DT, LSE: XTA.L)

With Bernanke back atop The Hill, and concerning jobless claims figures posted this AM, the broader market is lower in Thursday morning trade. We take position below on the topic of economic decoupling and offer advice for American policy makers.

ECONOMIC DATA & ANALYSIS

Weekly Jobless Claims

In the week ended February 23rd, initial jobless claims jumped up 19,000, week-to-week, to 373K. Economists were looking for 350K on average, so the news raised the eyebrow of the market and supported views that recession is in process.

Employment is a lagging indicator, as firms first sure up inventory and take action to serve margins through other cost reduction, and recently price increase as well. As other possibilities grow scarce, hiring freezes are put into play and then creative layoffs occur such as early retirement packages. Finally, companies shed less efficient operations and layoff larger portions of the workforce. Of course, all these things actually sure up businesses for more efficient future operation. The excesses of the past are burned off.

The report offered some underlying detail you might find interesting. Alaska, Michigan, Rhode Island, Idaho and Pennsylvania continued to lead all states in insured unemployed. The four-week moving average did not spike due to offsetting weekly figures.

Fourth Quarter GDP Revision

Gross domestic product went unchanged in its first revision, measured at a 0.6% real growth rate. And the market breathed a sigh of relief. But, let's zoom in and consider the details of the report from the Bureau of Economic Analysis. The BEA noted that the decreased rate of growth from Q3's mark of 4.9% was greatly due to reduced inventory investment, a lower level of export growth, personal consumption expenditures (PCE) and government spending, partly offset by lower imports.

In times like these, government spending increase would be supportive, but our government is already overburdened by huge deficit. It's interesting that despite dollar weakness, exports played a negative role this past quarter. Housing continued to play a significant role in limiting growth, as real residential fixed investment decreased 25.2%, compared to a 20.5% decrease in Q3. Decreases in inventory levels coincide with recent durable goods order trends. As unemployment rises, we start to see the stresses born by businesses resulting in a sort of pressure valve release.

Real exports of goods and services increased 4.8%, but this compared to a rise of 19.1% in Q3. While energy price change always plays a role in confusing data, we would like to make important note here. We often hear pundits taking one side or another on the topic of economic decoupling. One side of the argument concludes America still plays critical role in global economics, and of course this is true. The other side argues that the rising middle classes of India, China and others have reached critical threshold, so that these economies have decoupled from past dependence on America and Europe.

In life, nothing is black or white though. Both these statements are true, and of course, with time America's economic significance to this earth will be minimized. It's inevitable. As emerging markets develop, the world matures. America must regress toward a global mean, while the remainder of the developing world moves upward toward the American standard. The important question to ask now is which is more important. Will the global economy slow enough to release inflation pressure, or will America face ongoing price rise due to foreign consumption while it suffers through deep recession as a result.

The Greek thinks America's resolution to this problem is for American companies to take the global lead. American companies must use their first-mover advantage now, for instance, growing Wal-Mart (NYSE: WMT) in India faster than Indian start ups. While I disagree with Hillary Clinton's terminology and idea to take a "time out," I do believe it is critical that America flex its muscle now while it can to gain fair trading ground globally. This bargaining strength will not last forever, and we must employ it now or be marginalized later.