Should Equity Investors Take Profit ?

The indicators followed here were giving a positive signal for equities and other risk assets in late summer 2012:

• Global real narrow money expansion was rising, suggesting an economic pick-up from late 2012 – see here.
• A global “double-lead” indicator calculated here from OECD country leading indicator data had turned up, supporting the monetary forecast – here.
• A large gap had opened up between global real money expansion and industrial output growth, implying “excess” liquidity available to flow into markets.
• Central banks were easing policies and signalling more to come
• Investors were unduly pessimistic about economic prospects and positioned defensively.

The current message from the same indicators is more ambiguous:

• Global real money growth has moderated since late 2012 though remains at a level historically consistent with solid economic expansion.
• The double-lead indicator has also declined – see below.
• Global real money expansion remains above output growth but the gap has narrowed, suggesting a less favourable – but not unfavourable – liquidity backdrop.
• Central banks are still easing but may scale back further stimulus in response to better economic news and market buoyancy.
• Many but not all investors are optimistic and constructively positioned.

The judgement here, therefore, is that ...

Read more: http://moneymovesmarkets.com/journal/2013/5/15/should-equity-investors-take-profits.html