Coming Recovery to Miss Expectations?

There seems a pretty universal consensus that somehow the autumn will produce a recovery in economic activity that will at least justify present optimism about the outlook for share prices, or more accurately universal indifference and a feeling that they are unlikely to go any lower now.

This is what the great voting machine of the modern stock market is telling us. But has the market got it right or is it wrong as it was last summer? Let us not forget the market was wrong last summer, seriously wrong.

Financial meltdown

What followed was an awe inspiring drop in prices and a near financial meltdown. Nobody really saw it coming or if they did then it was just a roll-over prediction of doom ready for the occasion.

All it really needs for a repeat this autumn is for a new unexpected crisis to emerge. It could be the Chinese banks or Eastern Europe’s banking system or a series of financial collapses in America causing financial instability elsewhere.

Or could it be that the recovery this autumn is so weak that it panics everyone into a sell off? Or perhaps there is no recovery and some little boy jumps up and points out that the emperor is not wearing any clothes.

My point is that the risk is to the downside now. It could be that something unexpected happens to boost recovery. But what exactly could do that? The nationalization of General Motors (GMGMQ.PK), one of America’s largest companies?

Soviet US

That happened last week amazingly. GM emerged from bankruptcy and into state ownership. Is that the start of a recovery? It might be but it looks more like another step down rather then up in my book.

So when might markets resume their weakness, assuming the drift will continue over the summer? October is the usual rough month for stock markets, and there is no reason why it should be different this time. You might think that such a prospect would galvanize world leaders into action but their seemed little sign of it at the G8 meeting.

More stimulus packages would doubtless emerge but do not expect more.

Comments

[User 353732:]

1. US stock markets once were but no longer are voting machines; now they are manipulation engines designed to transfer wealth from Main st to Wall st. Consequently , they are excellent synthesizers of propaganda and sequential deceits but not conveyors of economic truths or financial signals
2. There was not and is not a consensus about the economy. There is an Establishment position that" there will be a recovery very soon, any day, maybe next week; certainly next quarter". This position has been and continues to serially and obviously wrong. Most ordinary Americans believed this in Q1; fewer believed it in Q2; only a minority of grown up Americans believe it in July 2009.

Each month there are fewer chickens and more empty pots.
At soon point the rumblings of hungry stomachs start to drown out the howls of establishment propaganda: even the ordinary, baffled, deceived and swindled American can( or soon will) understand this.

3. There are probably more risks in the global economy now than there were in mid Summer 2008: the more the Govts of the world distort markets, suffocate the free flow of capital, talent and information and the more they collectivize and distort resource allocation, the greater the chance that new economc and financial calamities will occur. The US Govt, in my view, is now the single greatest generator of economic risk on the planet.

Jul 13 05:38 AM

[Davewmart:]

'Nobody really saw it coming or if they did then it was just a roll-over prediction of doom ready for the occasion.'

Yeah, except for those who did.
To dismiss the many who said the economy was seriously unbalanced and had to correct as just rolling over predictions is not reasonable.
Sure, the timing is difficult to get right.
It always is when a sytem is tettering on the brink, as you can't tell when the sandcastle is going to collapse, but you can be sure that it will.
Those guys were right.
It was the neo-classical economic establishment that did not see it coming.

Jul 13 06:08 AM

[jaydawg:]

"Nobody saw it coming", funny that I just read another article on seeking alpha listing everyone who did see it coming.

Jul 13 12:44 PM