"Hope your Summer '11 is fun and well. Care to comment on the following observations:

"US consumer confidence as measured by the Conference Board is now 59.5. Chart 1 puts that in the context of its long term levels. Going back to 1970, every time the index has been below the present level, with the exception of the rebound from Q3 2009 until present (ie when the Fed was expanding its balance sheet), the economy has been in recession. The second chart overlays the University of Michigan consumer confidence index against the main conference board data. If we took the level implied by the Michigan data then we would be at a level comparable to the 1974 low and worse than either the 1980, 82 or 1992 lows. The only period worse would be the Q1 2009 low.

"Purchasing managers data worldwide has been poor. Britain's fell to 49.1, Ireland's 48.2, Spain 45.6, Taiwan 46.1 and Australia an incredibly weak 43.4. Even the Chinese HSBC survey which differentiates itself from the government survey with its inclusion of SME's is now below 50 at 49.3. Last month after the US ISM data I highlighted chart 3 showing the differential between the ISM index and the ISM forward looking index of new orders minus inventories, which is now back to levels associated with previous recessions or massive monetary stimulus in 1984 (a 175bpt rate cut in 1 meeting followed by 2 * 50 bpt rate cuts in the subsequent month) to avoid a recession. For the moment the US has just ended QE2, Europe is tightening and as yet China is unable to start stimulating although it probably could move quickly if there was a deflationary pulse.

"Whilst West Texas has stalled, Brent is still around USD119bbl and even worse Asian Mina oil price is now USD125bbl. This -

"(http://www.epmag.com/WebOnly2009/item41209.php) - highlights that historically every time US oil price has moved more than 50% on a sustained basis - (it uses the 12 month moving average against the previous 12 month period) - the US has always gone into recession. That is not the case with WTI at the moment, but as chart 3 shows the 12 month moving average of Asian oil prices is now 37% above the preceding 12 month oil price, and secondly spot price is another 20% higher again.

"Given the far higher sensitivity to the terms of trade change between oil and other goods in Asia to the rest of the world - (in Q1 2009 the World Bank said South Korea got a 4.27% boost to GDP purely from the USD58bbl fall between the average price for 2008 and Q1 2009), we have to think that Asia is going to struggle very soon. Asia will become a relative (not absolute) drag in comparison to what it has been.

"Since last June the Chinese RMB has appreciated by 5.67% against the dollar, but has fallen 14.54% against the Euro. China is struggling to remain competitive in the outside world which means there is an almighty risk of a capital account unwind, particularly with QE2 ended and the ECB raising rates.

"The stresses in the system are clearly getting bigger and bigger. At some stage soon investors will have to run for cover."

David Fuller's view Thank you for these detailed thoughts which I assume from the italics were selected from one of your recent research reports.

Fullermoney has been in the slower global GDP growth and somewhat lower corporate profits camp, as you know, ever since commodity indices in general and crude oil (Brent & WTI) in particular spiked earlier this year. I have seen it too many times before.

The US and European economies are in a weak position, to put it mildly. The growth economies have been fighting inflation. Many previously steady stock market chart patterns are now rolling over beneath potential top formations and eroding support. The price of crude oil has been too high for too long. Bond market action has been signalling fear, from plunging T-bond and Euro-Bund yields to surging Italian and Spanish yields. Consequently, there is not much to be cheerful about, although gold and silver remain the in-form havens.

The risk of capitulation selling in stock markets has clearly increased, although with interest rates already low in many regions, not least the USA and Europe, that may not be a very good strategy beyond the short term. In a potential global deflationary scare, growth economies such as China, India and Brazil would have scope to reverse their current inflation-fighting stance. As for Mr Bernanke, QE3, perhaps by another name?