One reason we've been bearish about the US economy and stock market is that we've never bought the "decoupling" theory. And, slowly but surely, the global economic superpowers appear to be falling in line behind the United States:

UK headed for first recession in 15 years (and earlier in its property bubble implosion)



Germany "growth" now negative

Whole Eurozone now contracting: -0.2% in Q2

Japan "growth" now negative

China slowing (and stock market forecasting a far worse fate)

And so on...

In fact, "Every region of the world except the Middle East and North Africa -- a beneficiary of high oil prices -- will experience a slowdown this year," Global Insight, a Massachusetts research firm, is quoted as saying in today's WSJ global-economic-slowdown essay.

Inflation is out of control in many emerging markets (not to mention the US and UK), which will limit central banks' ability to goose growth (not that they won't try). Global military tensions are still rising. Oil has fallen 20% from its peak, but is still higher on an inflation-adjusted basis than it has been at any time in modern economic history.

Weakening international economies will:

Hurt demand for US exports, which have helped the economy in recent quarters, especially with the demolished dollar

Spur protectionism

Prompt emerging economies to devalue currencies, which will further hurt US exports.

As the US is demonstrating, economies don't turn on a dime (Abby Joseph Cohen's famous supertanker analogy from the 1990s is apt in more ways than one). Falling commodity prices will help, but they won't help immediately. So a global recession still seems more likely than a quick recovery. And "the US is actually doing better than everywhere else" won't be of much solace to struggling American companies, and it likely won't stop the overvalued US stock market from dropping.

See Also: Wish It Weren't So, But US Stock Still Expensive