On the heels of a rough couple of weeks in global markets, today one of the top money managers in the world spoke with King World News about what may create a catastrophe in global markets within days.

Stephen Leeb:  “If you are scratching your head over the ebullient stock market, I think I can scratch that itch. Moreover, I can show why the market’s strength points to major bull moves in gold and silver as well as in most commodities. As a bonus, I’ll also identify the most important thing to watch for in coming weeks. Spoiler alert: it has nothing to do with all the head-spinning intrigues roiling Washington…

I can certainly understand bewilderment at the stock markets continued strength. As a market trading at or near all-time-high P/Es, it seems impervious both to political turmoil and a weak U.S. economy.

John Williams Exposes The Truth About The Economy
The economic news at home is hardly the kind you’d want to take home to mother. While the latest GDP figure was revised up to 2.1 percent from 1.9 percent, about half of that relatively weak gain came from inventory accumulation as final sales demand climbed at a 1.1 percent rate. Moreover, as noted by John Williams, a top-notch economist not beholden to the dreamers on Wall Street, the GDP numbers are dramatically out of whack with most other economic statistics, which show an economy barely inching along. For example, personal spending has flat-lined, the broadest measures of productivity have been negative, and labor productivity stands at a dismal 0.3 percent. These numbers suggest the inventory build will weigh on future growth.

And on the political front, the tumult keeps coming at us. So why hasn’t this alarmed investors, especially as stocks’ valuations climb higher? After all, it’s a reliable and logical rule of thumb that the higher the market’s valuation, the greater the market’s fall given even a dollop of disappointment.

Let’s start with how the stock market can ignore political chaos. However much it dominates the headlines, history shows that what counts for the financial markets is the economy, not politics. If the economy is strong, stocks can thrive despite political turmoil. In 1998, for instance, the biggest political story was President Clinton’s relationship with a White House intern. Stocks, though, remained oblivious. They did experience a frightening drop, but that reflected the economic crisis in Asia and consequent blow-up of a major and highly leveraged hedge fund, Long Term Capital Management. The Fed, which had been ready to raise interest rates, backpedaled and lowered rates, while the New York Fed pulled enough tricks out of its hat to limit the fallout from Long Term Capital. By yearend, ignoring the ongoing Clinton soap opera, stocks were off to the races.

China Keeping The Party Going
Today, though, as the figures cited above show, the economy is in a very different place from 1998. In 1998, growth and productivity were both strong – labor productivity was literally 10 times higher than today – and middle class anger was absent. Not only was there higher growth, it was far more widely shared. So if the economy drives the market, what explains today’s muscular stock market? The answer: It’s still the economy – but today, it’s not the U.S. economy that has kept the party going, it’s China’s economy.

Depending on what measure you use, China is either the largest or second-largest economy in the world. But by any measure it’s the world’s most important economy. In 2016, China contributed four times as much to world growth as the U.S. did and six times more than Europe. China now determines whether the world is in recession or growing. And right now, China is growing, with some recent statistics on manufacturing and services the highest in 5 years. The Hang Seng Index, which includes those supposedly moribund Chinese banks, by a wide margin has been the best-performing major stock index so far this year. And if you still don’t grasp China’s importance, think back to January 2016, when the U.S. market experienced its worst-ever start to a new year as China’s economy appeared to spring a leak. Once the leak proved to be a mirage, U.S. stocks took off.

So if you want to know what economic data is most important to the U.S. stock market, you have to stay up pretty late because the important Chinese numbers come out while we are asleep. And we have to wake up in more ways than one. America is being left in the dust. While our politics won’t matter much in the short term, longer-term, unless America finds religion and comes together on critical issues, the gap between the U.S. and China will continue to widen…..More Here