Economics and the markets: The risk that dare not speak its name

Posted: November 28, 2013 in economy
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THE stockmarket ploughs ahead in its merry way, in the serene confidence that the US economy has regained some momentum, the eurozone has avoided a turbulent break-up and, if all else fails, the central banks can be relied upon to keep the party going. But what if there is a risk that the market doesn’t like to think about – that the global economy could slip back into recession?Surely that can’t be right; the recovery is yet to really get going? But in his latest research note, Albert Edwards of SocGen points out thatInvestors’ perceptions of the “normal” length of an economic cycle are strongly influenced by their own working experience. In that context, the last three economic cycles have been unusally lengthy, averaging 95 months from trough to peak. But these cycles were perversions of the economic cycle, as the Fed manipulated the private sector credit cycle to extend the cycle which became known as the Great Moderation.It is now 55 months since this cycle’s June 2009 start. This is already a lengthy recovery. Ignoring the last three Fed-inspired freaks of economic cycles, the average cycle only lasted some 36 months.So where is the evidence that activity might be turning down?  Copper is often seen as an economic indicator and the chart shows, it is around 20% below its 2011 level. Dhaval Joshi of BCA Research shows that copper and the DAX (Germany’s stockmarket …

via Economic Crisis


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