Geopolitics lead to Boom/Gloom Index tumble after record high

Economic growth


Index May14The IeC Boom/Gloom Index (blue column) proved its value again last month.  It shot to a new record high, and this was then followed by a record high for both the S&P 500 (red line) and the Dow Jones Industrials.  But now the Index has fallen sharply.  This highlights the major divergence between developments in the real world, and financial markets:

  • It was no surprise to see US GDP at just 0.1% in Q1, or that over 800k people left the US workforce in April
  • Nor is it a surprise that Abenomics is now going seriously wrong in Japan, with auto sales forecast to fall 15%

Instead, just as forecast in the blog’s New Year Outlook, policymakers’ optimism about an ‘inevitable recovery’ has once again disappointed.

The real concern about financial markets, however, is the debt of debt now taken on by traders.  Borrowing levels on the New York Stock Exchange remain at record levels at $450bn – higher, even, than during the previous bubbles of 2000 and 2008:

  • High levels of borrowing suggest that traders believe that US policymakers will not allow markets to fall
  • Thus they are happy to speculate with borrowed money, to increase their ‘winnings’
  • If someone borrows $100 to invest alongside their own $100, they double their return if the market goes up
  • But, of course, they can lose more than their original $100 if the market starts to fall

This is what has always happened in the past – as at the end of the dot-com bubble in 2000, and the subprime bubble in 2008.  Suddenly people realise they have overpaid and rush for the exits.  But we are not yet at the equivalent moment to 7 September 2008, and the blog’s now famous warning “The Price of All Assets Will Go Down“.

In the meantime, the speculators simply laugh at warnings and remind everyone of the profits they are making.

But there is no shortage of potential catalysts to cause markets to go into reverse:

  • Ukraine’s fighting continues: and the US has sent 600 troops to Poland/Baltic states to support its NATO allies
  • Oil markets look perilous, with record high US inventories starting to pressure prices
  • China’s leadership is continuing its credit crackdown on the real estate market
  • As the blog discusses tomorrow, this means developers’ cash needs are now driving polyethylene imports

And, of course, this month sees the European elections take place.  These are likely to provide further warning tremors of the earthquake that threatens today’s seemingly calm market surface:

  • It is quite possible that anti-EU parties will top the polls in 2 of the 5 major EU countries – France and the UK
  • Across the EU itself, Reuters suggests these parties could well achieve 20% – 25% of the total vote
  • Of course, conventional wisdom says they can safely be ignored, and that it will be ‘business as usual’
  • But this vote would double the Greens 7.5% in the 1989 election, which made environmentalism a major force

The key issue is that markets and companies have become complacent over the potential impact of geopolitics.  They have forgotten the world before the Boomer-led SuperCycle.  And as the saying goes, ‘those who cannot remember the past are condemned to repeat it’:

  • China’s Communist Party has no interest in anything other than its own survival in power
  • It is taking the necessary steps to ensure this survival, as the blog’s Research Note described
  • Similarly the Russian leadership does not depend on Wall Street money for its survival
  • The anti-EU parties also have their own agenda, which does not include ‘business as usual’

The blog continues to have a bad feeling about the outlook, which won’t go away.  It fears an earthquake threatens.

And it remembers its fear through 2007-8 that a hurricane was about to hit Western economies.  And also, that on the fateful weekend of 13-14 September 2008, there was not only a real hurricane in Houston, but also the Lehman collapse that triggered the financial crisis.


The blog’s weekly round-up of Benchmark price movements since January 2014 is below, with ICIS pricing comments:
PTA China, down 12%. “Inventories in China remained ample, with several market participants estimating it to be at around 1.6m tonnes, which was above the healthy mark of 1m tonnes”
US$: yen, down 3%
Brent crude oil, down 1%
Benzene, Europe, up 2%. “Many players expect pricing and availability in Europe to remain volatile”
Naphtha Europe, up 3%. “Pricing volatility has contributed to market uncertainty as traders struggle to determine positions amid mixed signals from downstream sectors”
S&P 500 stock market index, up 3%
HDPE US export, up 7%. “Producers waited to see whether global prices rise enough to make US material competitive in the global market”


Pension promises unaffordable due to demographic change


As promised yesterday, the blog looks today at the impact of today’s rapid...

Learn more

China's PE imports jump 26% as credit bubble peaks


Strange things are happening in China’s polyethylene (PE) market, as the c...

Learn more
More posts
No Deal Brexit still a likely option if opposition parties fail to support a new referendum

Canada’s normally pro-UK ‘Globe and Mail’ summed up the prevailing external view of Brexit las...

UK, EU27 and EEA businesses need to start planning for a No Deal Brexit on 31 October

New UK premier, Boris Johnson, said last week that the UK must leave the EU by 31 October, “do or ...

London house prices edge closer to a tumble

After the excitement of Wimbledon tennis and a cricket World Cup final, Londoners were back to their...

G7 births hit new record low, below Depression level in 1933

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

From subprime to stimulus…and now social division

The blog has now been running for 12 years since the first post was written from Thailand at the end...

Resilience amidst headwinds is key for H2

Resilience is set to become the key issue as we look forward to H2, as I note in a new analysis for ...

Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms

Never let reality get in the way of a good theory. That’s been the policy of western central b...

Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales

Trade wars, Dieselgate and recession risk are having a major impact on the European auto industry, a...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more