Global Growth Likely to Surprise on the Upside

As world markets continue to rally in the face of tax cuts, stimulus packages, monetary easing, various new social programs aimed at protecting the middle class from the impact of the economic downturn, there are indications that the recent revival in economic activity is going to bring about some positive surprises on a wide scale. Both investor and consumer sentiment are indicative of a slight but steady revival of confidence, and if that attitude is sustained, financial speculation and reckless credit expansion by governments may well extend this rally into the winter season.

Perhaps the most important signs of revival are coming from Asia. Japan has reasons to be optimistic that its new government will finally be willing to tackle the pressing issues of the past decades with some credibility and determination. The emerging behemoth, China, has not felt the impact of this crisis as strongly as other nations have, and with a bit of luck they may eventually come out as a stronger, more balanced economy once the crisis dissipates. The resurgence in the U.S. means that the Indian IT sector is finally seeing some revival in demand. In Europe the social programs in place have mitigated the impact of the economic collapse to some extent, and the more balanced economy of the continent may be better placed in a revival led by Asia, as exports pick up, and commodity demand increases.

The sick man of the global economy is America. Here the problems are a lot deeper, the remedies ephemeral, and the analysis unrealistically optimistic. In the U.S. there is a spending infrastructure built on the notion that the expenses of the American consumer will continue to be paid off by others, yet it is highly suspicious that this infrastructure will survive the severe effects of the asset deflation which we have had to live with during the past few years. If government efforts can revive the optimism of the American consumer, perhaps the illusion of wealth can be maintained for a while. But it is unlikely that we’re going to see a return of the good old days of the 90s or the early 2000s any time soon.

And without America, how long or how deep can a global recovery be? Even if we propose that the American economy will benefit from the resurgence of China and other emerging markets, the necessary readjustments in the economic structure towards a more export-oriented model would take years to be implemented, and to mature. In this context, it is hard to see the recent bullish action as anything more than an upward phase in a secular bear. Our assumption is that people are and will be forced to change their attitude to economics and prosperity in this country and abroad. The market appears to believe we’re wrong, but we still see that the weight of evidence overwhelmingly supports the volatile case of a multi-year bear.

Comments

[Roger Knights:]

"If government efforts can revive the optimism of the American consumer, perhaps the illusion of wealth can be maintained for a while. ... In this context, it is hard to see the recent bullish action as anything more than an upward phase in a secular bear."

Off to the sane asylum with you!

Sep 24 10:22 AM

[enigmaman:]

Your said "The sick man of the global economy is America."
Sorry but from what Ive read the rest of the world is as sick or sicker then America, some economies like China and India are not sustainable, they are manufacturers not consumers, they look to the American consumer to support their economy and we are MIA, so eventually their market and economy will respond. France, Germany expect anemic growth and are already talking about expecting less and providing less social services to their dependent population, doesn't sound like they are feeling so strong.

I agree with your statement " financial speculation and reckless credit expansion by governments may well extend this rally into the winter season" but to what end?

America has some serious problems that cheap money and stimulus has done nothing to fix, since the financials have been saved the economy has been settling down of its own accord, the Admin cannot point to any other of its policies and state with any certainty " This good you see happening, is a result of what we have done"

We are in a trap, of cheap money, with no savings, no lending, no credit, to much debt, higher taxes, higher rates, no opportunities, no jobs and with no other options except to wait this out, and nothing the Admin or the Fed can do about it. Its a position we haven't been in before and they know it and are scared to death that they have in spite of what they may say publicly, they have run out of options

Sep 24 04:48 PM

[conceptwizard:]

Check out the BDI and transportation tonnage along with retail sales, then look at crushed rock and lumber. After that try to convince me than Global GDP increases are nothing more than stimulus injections.

Sep 24 09:45 PM

[Mark Bern:]

The "official" forecasts and headlines from around the world are saying that the recession is over just like in the U.S. I don't believe their "official" hooey any more than I trust that coming out of our own government. And I don't trust my own government as far as I can spit.

The great China growth engine has, in fact, stalled. But the "official" word is just the opposite. Early this year a Chinese government official released a report showing that over 20 million workers had lost their jobs and that it could foresee the total rising to 50 million. Immediately after that release, the Premier assumed the responsibility for nearly all "official" press releases. His first statement was that growth in GDP was down to about 6.9% but he assured everyone that the stimulus beginning to be released into their economy would raise that figure back to 8% or more for the remainder of the year. That lower government official has never been heard from again and probably never will be.

The Chinese stimulus money made available a lot of money for loan from the banks, much of which was used for speculation (starting to sound familiar?), some in stocks and some went into commodities. When the warehouses got full and the government tightened credit, the speculation slowed way down.

As concept wizard points out, the BDI show a very dismal picture. There are photos of hundreds of ship not in use just sitting at anchor all around the world. Zero Hedge did an interesting article on the subject, using Google Earth to paint a very stark picture. The message was clear: the global economy is a mess!

I think that the rest of the world is just better at hiding it from us or we just trust them more. I don't know which, but either way we're all in this together and it's not pretty.

Sep 24 10:42 PM

[SAS70:]

Mark

Not to worry our government isn't in control anymore (that maybe a good thing). The G20 will now take on a new expanded role as permanent body co-ordinating the world economy. I'm sure you will sleep better now.

NOT!!

Sep 25 12:08 AM