Leading stock markets may finally be connecting with the real economy after a long period of in-denial euphoria. Even before US President Donald Trump signalled that trade wars may persist (only to be refuted by rumours of an imminent deal ), there were signs that stock dumping might be imminent. After a veritable frenzy of buying back their stocks, some big companies in the US and elsewhere are using their overvalued shares or “scrip” as a currency to buy other companies that have real assets and earnings while the going is still (just about) good. This is an ominous sign. Buying back shares made sense for firms with interest rates at record lows. It makes debt capital cheap and results in higher earnings for remaining shareholders. But a recent wave high-profile mergers and acquisitions (M&As) – including LVMH buying Tiffany and the Manchester City football club deal – with some financed by share exchanges, has been seen by some analysts as signalling the end of the bull market. When companies begin to buy competitors rather than invest in new, greenfield activity, and when they use their stocks to buy that growth, it signals diminishing confidence. It could also be a sign of an impending economic slump. I have been chided recently for being overly pessimistic about the risks of a crash and one Post reader noted “the sun goes down and the sun comes up”, meaning the economy moves in cycles and a downswing is not alarming. It is true that the sun follows the rain, summer follows winter and day follows night. But when financial “weather” patterns point to a perfect storm in the making, we should worry. Other than the record bull market in stocks , it is hard to name one good thing on the global economic front. Trade and investment are declining, as are economic growth rates and business confidence . Even if the US and China reach a “phase one” agreement on the less contentious issues in their trade war, it only reveals the true size of the problem – rather as “getting Brexit done” will serve to reveal how complex the issues are between Britain and Europe. Trade between the US and China will not surge back to previous levels, as the market seems to suppose. It has been structurally damaged by the trade war, and Trump's latest threatened trade assaults on Brazil, Argentina and even France reveal yet again how frivolous his approach to trade is. But stock markets in the US and elsewhere have marched on regardless, buoyed by continuing monetary easing , and even by the idea that recent developments herald a fresh boom in M&A activity and an extension of the bull market. This circular logic is absurd, given the nature of the corporate acquisitions. This financial house of cards must surely collapse, and it looks like this will happen sooner rather than later. If anything were needed to touch off a crisis of confidence, it would have been Trump’s latest trade tantrums, which hardly look like carefully crafted examples of the art of the deal. Stock markets cannot be the only sun at the centre of the economic universe If stock markets do enter a correction, that could create a perfect storm. So much hangs upon the wealth effect and inflated asset values created by the equity bull market. When Trump says that market drops are “peanuts”, it is as reassuring as his claim that trade wars are “ easy to win ”. And here we come to the crunch. US and British leaders are so enmeshed in domestic strife they cannot give the economy the attention it needs (even if they understand it), and they seem intent on taking the rest of the world down with them. China’s President Xi Jinping is likewise diverted by domestic issues such as Hong Kong and Xinjiang . So, stewardship of the Chinese economy may also suffer while European leaders have their hands full fighting battles with the Trump administration. The sun goes down and the sun comes up but the coming eclipse could be scary indeed. Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs