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

Everyone is now beginning to notice the change in economic policy in China.  An...

Learn more
NEXT POST

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

14/09/2015

My local MP, Jeremy Corbyn, won the UK Labour Party leadership election on Satur...

Learn more
More posts
UK, EU27 and EEA businesses need to start planning for a No Deal Brexit on 31 October
28/07/2019

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

Read
London house prices edge closer to a tumble
21/07/2019

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

Read
G7 births hit new record low, below Depression level in 1933
14/07/2019

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

Read
From subprime to stimulus…and now social division
06/07/2019

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

Read
Resilience amidst headwinds is key for H2
30/06/2019

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

Read
Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms
23/06/2019

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

Read
Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales
16/06/2019

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

Read
2019 Global Outlook – a mid-year update: ACS webinar on Thursday
04/06/2019

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and t...

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