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Boom/Gloom Index remains in no-man’s-land

Financial Events
By Paul Hodges on 06-Jul-2013

Index Jul13a

This month’s IeC Boom/Gloom Index continues to flash warning signs over the state of global financial markets:

  • The US S&P 500 Index (red line) and other markets have been supported by $10tn of central bank liquidity programmes (orange arrows) since March 2009
  • In addition, individual governments have spent further $tns on stimulus packages to support consumer spending on cars etc
  • Each time one programme ended, another one started as it soon became clear spending was still weak
  • The concept has been this will provide ‘escape velocity’ and the economy will then move back to SuperCycle growth levels

The strategy was aimed at creating a recovery in household spending, as this is 60% of western GDP.  Yet ageing populations don’t need to buy many new things, so their consumption is unlikely to return to the SuperCycle levels seen when they were younger.  Unsurprisingly, therefore, the Boom/Gloom Index itself (blue column) remains stuck in the 4.0 – 6.0 range between Boom and Gloom.

Developments in the main regions highlight the uncertainty.  US markets now believe that Q3 will be the moment when consumers finally resume spending, so the S&P 500 is making new highs.  But Europe and China are moving in a different direction – Europe seems stuck in recession as the German economy starts to weaken, whilst China’s priority is on withdrawing stimulus and rebalancing its economy.