Green shoots disappear as new reality dawns

Index Oct09.jpgSentiment is a very important influence in markets. When positive, as it has been since March, traders tend to ‘look through’ today’s problems to a brighter future. But at some point, reality needs to confirm this optimism.

The IeC Boom/Gloom Index (blue column) aims to measure these changes in sentiment. It correctly forecast March’s turning point, since when financial/commodity markets have risen around the world. But last month’s 40% decline suggests this bear market rally may be ending.

The focus of the rally was the belief in ‘Green Shoots’ (green line) of recovery. This began to rise in early 2009, and took off in March, when it rose 4-fold, before peaking in June at 162. Q3 saw it begin to slip, and October’s new reading shows it back at 37.

Back in August, the blog suggested that all major downturns go through 3 main phases – “sharp down, reflexive rebound, a drawn-out fundamental downtrend“. Today’s new Boom/Gloom Index suggests we are now starting to move into the 3rd phase. A sharp rise in the “Frugal Index” (red line) by year-end would confirm this is underway.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Green shoots disappear as new reality dawns

  1. Rob 5 October, 2009 at 2:07 pm #

    Why I don’t believe a word Bernanke says:

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