The impact of the Madrid bombings on global economies

The early result, according to the Sunday Times, is that the bombings have not derailed world markets and that the official growth estimates are unchanged. The consensus view is that the American economy will expand 3% to 3.5% this year and Europe will grow about 1.5% during the same time. The concern of many of the largest investors, however, is that these numbers may be a bit optimistic for the longer run.

“Madrid changes nothing,” according to Pelham Smithers of investment advisor Andrew Smithers. “What it did was highlight the uncertainty factor.” The Smithers are devoted followers of Q, a measure of a stock’s value developed by economist James Tobin of Yale University. Q is based on the replacement cost of a company’s assets. Q measures indicate that markets are in the middle of a global liquidity boom, so in the short run stock prices could actually go higher. It’s the longer term that is a concern: “Entering the market today is like entering a casino. Some people may be clever enough to win. But the longer you play, the more the odds are against you,” says Smithers.