It does not require a crystal ball to see that some stock markets and commodity prices have become overvalued and are about to correct themselves in the coming weeks. The rebound from the lows of earlier in the year has been spectacular and markets such as London are experiencing their best run in decades. However, many economists now believe that the rebound has gone too far. This is certainly my gut feeling and there is some statistical evidence to support my fears. One such indicator is gold. This traditionally counter-cyclical commodity has been steadily rising in price in recent weeks. Gold hit $988 (Dh3,628) an ounce last week and is threatening to crash through the $1,000 barrier as investors seek a safe haven for their wealth – not a good sign. The Baltic Dry Index has also taken a worrying tumble recently, down more than a quarter in the past couple of weeks alone. The Baltic Dry is one of those indicators that tends to get ignored by most economists but it gives a useful picture of global trade as the index measures demand for large cargo ships. The sudden collapse in the index suggests that a period of restocking, particularly in China, is now over and levels of trade are slipping back to a more sustainable level. Stockmarkets are bound to realise soon that they have overbought and the correction is going to be painful. I would expect a 20 per cent reduction in stock values in the next couple of months but that should not be mistaken for a sign that we are entering another recession, it is simply a case of reverting to a more realistic level.

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