Stock markets weaken as ‘Ring of Fire’ fault-lines open

Economic growth

SHARE THIS STORY

Stocks Sept15

Central banks have created a debt-fuelled ‘Ring of Fire’, and we will no doubt have felt many tremors (large and small) as a result, by the time my next 6-monthly update appears in September“.

That was my forecast for world stock markets back in March, and I imagine few would argue with it today, as we review developments since then.  Central banks have spent almost $25tn since the Crisis began in 2008 in the belief they could kick-start global recovery by boosting asset markets, particularly stock markets.  As then US Federal Reserve chairman Ben Bernanke explained in November 2010:

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

Today, 5 years later, it is hard to see why the policy was adopted.  It was meant to be a temporary support, whilst economies recovered.  But instead it has become semi-permanent, with the world’s major financial organisations now warning against even a 0.25% US interest rate rise next week:

What was the point of spending all this money, and building up so much debt, to have achieved so little?

Even in stock markets, the impact has been underwhelming, as the chart above highlights, showing the percentage change in major financial markets since their pre-Crisis peak:

  • The best performer is the US 30-year bond, up 38%, as investors focus on the risks of deflation
  • Germany’s DAX is up 26% as a ‘safe haven’ from the Eurozone crisis
  • The US S&P 500 is up 24% – but has fallen 6% since my March update, with the IMF warning that prices “are approaching levels that may be hard to sustain given profit forecasts
  • BRIC member India is up 23%, but down 13% since March as premier Modi’s reform programme seems to stall
  • Japan has seen zero growth, despite its $480bn/year stimulus and 50% devaluation versus the US$
  • The UK is down 8% as its London housing bubble starts to burst as foreign buyers rush for the exits
  • The other 3 BRICs were supposed to lead the world out of recession – but Brazil is down 37%, China down 48% and Russia down 68%

Today’s globally ageing populations and falling fertility rate are inevitably having a major impact on the economy.  But unfortunately, politicians have wanted to believe that printing money would somehow change the fact that the BabyBoomer-led demographic dividend has now become the demographic deficit of the future.

Financial market developments over the past 6 months are warning us that we will all pay a heavy price if this wishful thinking continues to dominate economic policy.

 

PREVIOUS POST

China's PP production rises 25% as it moves into higher-value export markets

09/09/2015

“Central banks have created a debt-fuelled ‘Ring of Fire’, and we will...

Learn more
NEXT POST

Political risk rises as polls boost Corbyn, le Pen, Trump, Sanders

14/09/2015

“Central banks have created a debt-fuelled ‘Ring of Fire’, and we will...

Learn more
More posts
US-China trade war confirms political risk is now a key factor for companies and the economy
12/05/2019

There are few real surprises in life, and President Trump’s decision to launch a full-scale tr...

Read
Uber’s $91bn IPO marks the top for today’s debt-fuelled stock markets
28/04/2019

Uber’s IPO next month is set to effectively “ring the bell” at the top of the post...

Read
The End of “Business as Usual”
21/04/2019

In my interview for Real Vision earlier this month, (where the world’s most successful invest...

Read
Most businesses were nowhere near Ready for Brexit last Friday – we mustn’t make the same mistake again
14/04/2019

Thank goodness for backbench MPs and the European Union. Without their efforts, the UK would by now ...

Read
Don’t get carried away by Beijing’s stimulus
07/04/2019

Residential construction work in Qingdao, China. Government stimulus is unlikely to deliver the econ...

Read
Businesses thrilled by Brexit uncertainty: “It’s exhilarating” says small business owner
01/04/2019

With the European Commission saying that a No Deal is now “likely“, small businesses acr...

Read
Ageing Perennials set to negate central bank stimulus as recession approaches
10/03/2019

The world’s best leading indicator for the global economy is still firmly signalling recession...

Read
BASF prepares its UK supply chain for Brexit
24/02/2019

BASF has been working with Ready for Brexit (the online platform I co-founded last year) as part of ...

Read

Market Intelligence

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

Learn more

Analytics

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