Is the economic recovery overheating?

by Andrew Newman
in Economy
28 Sep 2009 | 2 Comments

It appears parts of the global economy have already come full circle since 2007, with a move back into the Overheat phase of our Investment Clock model.

Growth lead indicators have strengthened substantially, with the scorecard lead indicator back to levels last seen in the 2003/4 v-shaped recovery. Interestingly, headline inflation lead indicators have also picked up.

This moves the Investment Clock model into the Overheat phase for the first time since 2007.

This is no ordinary overheat. Central banks will be in no hurry to move to a restrictive monetary policy, given massive spare capacity and fears of a relapse in economic growth and unemployment.

Investment Clock Portfolio Positioning Trail

A model can be useful to help investors understand where we are in the economic cycle and what might come next. Fidelity International uses an "Investment Clock" (above left) that links the performance of asset classes and equity sectors to the global economic cycle. Using the clock we can estimate what phase we are in and where we are heading (above right).

The above article has been sourced from FIL Investment Management (Australia) Limited.

Important Information

The information provided is general in nature and does not constitute financial advice. While we have taken reasonable care in providing this information, it should not be construed as being specific to your investment objectives, financial situation or particular needs. It's important for you to consider these matters before making any financial decision and we recommend you seek financial advice.

Comments (2)

Thank you for your feedback Theo. I’ve read comments recently that after buying large when the stock market tanked, Warren Buffett now thinks its time to pull back on buying stocks. He's cleaning out some dead wood and replacing it with corporate and government debt rather than new stock purchases. Even though the economy is on the mend, Buffett is concerned that it is still weak.

29 Sep 2009, Andrew Newman, www.cmpfinancialplanning.com.au

I agree. What has fundamentally changed since the end of last year with stocks on the ASX? Nothing I think. People are repeating the same errors & pushing prices up. Stampeding like Bulls so they do not miss out on the gains. But they are doomed to repeat the mistakes opf yesteryear. The insitutional investors are generally holding back. It is a lot of the smaller investors in the market right now.........

28 Sep 2009, Theo Mavrokostidis

Is the economic recovery overheating?

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