The Future Starts To Look Grim

I am talking about the future of the economy.

I am starting to see signs of a new recession and a new bear market. For now, this is just speculation with no technical confirmation from the markets, but there are a few clues that hint in this direction.

First, here is the chart of the leading indicators for the OECD countries and for the emerging economies. The chart is taken from the ECB latest monthly report.

The red line and circles are mine. Notice that the series is starting to turn. The same turns coming from such levels in the past have been leading economic recessions.

Then, a leading indicator of economic and stock market performance has just broken its bull market range: Gallup Economic Confidence Index. This break is confirmed by the advance data for July for the UM Consumer Sentiment (chart not included).

Looking back into history, I learned to trust confidence indicators. The above is a strong signal of future trouble. I found that such a signal is to be taken seriously when the move is confirmed by the Index of Major Purchases in Europe - a consumer confidence measure that is calculated by myself using data from the monthly consumer survey in Europe.

The recent weakness of this index is as big or bigger than at past major tops.

The above does not necessarily have implications for the intermediate term for now, but it might have after a few months. I think the market will start to anticipate the expected H2 2011 economic acceleration, probably after weakness into the August NFP number next week. Still, if economic data does not come in strong enough this autumn, the bull market will probably end.

I am labeling this post "the next bear market" because I intend to gather more data on this as it becomes available.