Are We Looking at a Second Half Slowdown?

Stocks are getting battered across-the-board yet again today, with all of the major U.S. stock indices down 2 percent as of this writing. The Dow is down over 1300 points, or 12 percent, from its recent April 23rd high.

Investor fear is running rampant across Wall Street and around the globe. And, as if the contagious European debt crisis weren’t enough, the markets now have military tensions between North and South Korea to add to their laundry list of worries.

So, the question must be asked: Are we looking at a second half slowdown? Is growth going to come in only around 1-2 percent, instead of say, 3 or 4 percent? Is that the real message of our sinking stock market right now?

We’ve got Spanish banks going down now, bank-to-bank funding stress rising in Europe, gold still soaring, the euro still falling and Nero fiddling. Libor is now up 11 days in a row. Did someone say contagion? Systemic risk? Interconnectedness?

Meanwhile, credit risk spreads between high-yield junk bonds and Treasurys right here in the U.S. have jumped roughly 200 basis points in just the last month. These are not good signs.

Over in Europe, they’re still guaranteeing all of their welfare state countries. That’s wrong. What they really ought to be doing is temporarily guaranteeing their bank debt to avoid a credit meltdown. Let these countries sweat bullets to curb their welfare states.

One silver lining in all of this remains the steep Treasury yield curve. It’s still predicting no double-dip recession. We’ve also got a strong King Dollar which is pushing down energy prices. Gas prices are actually falling heading into Memorial day weekend. This of course becomes a tax cut for American consumers and businesses. That’s a good thing.

One final concern worth noting: if China were to jack up its renminbi right now, that could very well turn into one big global deflationary mistake.

More to be revealed…