Charts you need to see.
The World’s Equity Markets:
Only the NASDAQ has moved above its July highs in the recent market appreciation. This suggests that we may be witnessing the dreaded “dead cat bounce”, and that the market has reached a peak. The impending rise in US interest rates could see first a rise and then serious drop in markets - this is exactly what happened when everyone thought rates would rise in September. We shall see.
The Q-Ratio is the total price of the market, divided by the replacement cost of all companies. It should be about 0.68 to reflect historic valuations. If it rises above this it signifies market overvaluation. It is now at 1.04, close to the value at the start of the Great Depression, for example.
World Trade:
The China Containerized Freight Index, and the Baltic Dry Index are measures of the movement of world trade. The more demand there is to move freight, the higher the index. These indices have fallen off dramatically in the last six months suggesting a significant slowdown in world economic activity. This also explains the Chinese currency devaluation last summer, where they were obviously trying to recapture lost trade through a lower currency.
US Unemployment:
The world is the American consumer’s supplier. Where that consumer goes, so will the world’s economy. The official unemployment rate in the USA is about 5%. But this does not include people who have given up looking for work. If you include those people, or just measure the percentage of the people of working age in the USA who are available for work but who are not working, the rates are actually more like 10% and 22.5% respectively. These people will not be driving an economic recovery any time soon.
Where did these people all go? Maybe here…
In 2000, 16 million Americans lived on Food Stamps. Today, over 45 million people do - about one in seven Americans.
Commodity Prices:
Commodities are in demand in a growing economy and in decline in a slowing or shrinking economy. The lead commodity indicator - the commodity “canary in a coal mine” is copper. Copper prices have now fallen to below $3.00 a pound - the point they were at during the 2009 recession.
Inflation:
With the mass of stimulus in the world’s economy, there should be significant inflation worldwide. The significant deflationary threat indicated in the chart below should not be happening.
Conclusion:
No one can tell you where the world’s economy and equity markets are heading. The indicators above suggest that a serious downturn is in the offing. It is worth noting that Canada already experienced a recession this year, and Japan is in recession now.
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