For all his evident talents as a geostrategist, I’d never had Osama bin Laden down as much of a markets guy.
I know his family is well-versed in the Middle East construction business and that he is once thought to have written a rather audacious call option on US airline stocks in the days before 9/11. But he has been rather more into demolition than construction of late and if he ever did make that infamous airline trade, you’d have to acknowledge he had the benefit of some unusually good inside information. In any case, being forced to live in a cave for the past six years somewhere on the Pakistan-Afghanistan border must have rather limited his effectiveness as an investment guru.
Yet there he was on our TV screens again last week, sporting a new look and dilating happily on the state of the US economy.
He took the opportunity of the anniversary of the 9/11 attacks to branch out from his usual theological strictures and offer a rolling lecture to Americans on, among other things, global warming (bad), the writings of Noam Chomsky (good) and a priceless little observation about “the reeling of many of you under the burden of interest-related debts, insane taxes and real estate mortgages”. So there you have it. If the US sub-prime mortgage crisis has reached into the inner sanctums of the al-Qaeda leadership bunker, you know it must be pretty serious.
The man’s timing, as it happened, was impeccable. On the very day he released his video, the US Government released another unpleasant surprise. The employment data for August were a bigger horror show than Osama’s ridiculous ramblings. The decline in non-farm payrolls of 4,000 was the first monthly fall in four years... These figures are certainly consistent with a sharp slowdown in the US economy. They were bad enough to warrant serious consideration now of the question: is the US headed for its first recession in six years? Or put it this way: are bin Laden and his friends finally going to get their hearts’ desire and see the US tip into its first slump since their efforts six years ago to the day actually helped it to emerge from its last one?
The simple answer is: we don’t know. But here are some pointers for the next few nervous weeks. First, the data do not yet suggest that a recession is upon us. The economy had considerable momentum (a 4 per cent growth rate) going into the third quarter of the year. A weakening labour market and softness in consumer spending in July and August will slow that momentum significantly, but should not necessarily halt it completely. Secondly, the Federal Reserve will now certainly cut interest rates to soften the blow... Thirdly, the global economy is in robust shape...
On the other hand, the big uncertainty is that we don’t have a real clue yet about the economic impact of the credit crunch. The August employment report will have largely reflected conditions when the squeeze was just beginning to bite over the summer. The housing market seems certain to weaken further and many employers may now be struggling to raise funds from nervous banks and frosty credit markets.
It’s still possible that August was just a bad month – we have had them before in periods of sustained expansion. But – and I want this to be understood in only the very narrowest of terms – Osama was right. The US economy is in perilous waters right now. While recession is not inevitable, perhaps not even probable, it just got significantly more possible.