Even at the height of the remarkable rebound of 2009 that brought stocks back from the dead zone, the bears never retreated to their lairs. Negative sentiment among investors remained stubbornly high, no matter how promising the economic indicators looked.
And then along came the Greeks and their little sovereign debt problem, the Chinese and their public hand-wringing over asset bubbles and the North Koreans and their latest idiotic sabre-ratting to remind nervous markets just how fragile the nascent global recovery could turn out to be.
The latest survey of American investors last week showed bearish sentiment hovering close to 30 per cent, with plenty of room for an uptick in the months ahead, as the optimists come to realize that a V-shaped recovery was never in the cards after the worst global financial and economic crisis since the Great Depression. The world's most overexposed permabear, Nouriel Roubini, is still grabbing headlines with his dire Greece-is-just-the-tip-of-the-iceberg warnings. (Well, he does have a new book to sell.) And such high-profile Canadian bruins as gold-loving money manager Eric Sprott and eminent strategist and data miner David Rosenberg have never veered from their sombre outlooks.
Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:d0fa4e14-88d2-41f9-8a19-896bdff9544b
The fact that May turned into a particularly brutal month for just about everything but U.S. Treasuries - even after last week's modest rebound, the Dow posted its worst performance for the month in 70 years - only added fuel to arguments that worse, much worse, is yet to come.
I mention all this to Eswar Prasad, when I reach the Cornell University economics professor at his hotel in Beijing. He's a noted China watcher who once headed the IMF's China division and still keeps in close touch with top government finance officials. But on this call, I'm more interested in one of his other hats as a shrewd analyst of global economic and market trends.
"My inclination also is to be a bear," the affable academic says. "But the data don't support my bearishness as much as I would like. One has to be a little cautious, because these are based on a variety of indicators. Some of them certainly show more strength than I had realized."
The data he's talking about come out of his work on a new composite index derived from a broad set of economic, market and confidence measures in the G20 countries and designed to provide a quarterly snapshot of the global recovery.
"All signs are that the recovery has some momentum," says Prof. Prasad, who developed the index at the Brookings Institution, a Washington think tank where he is also a senior fellow. "But I wouldn't call it solid enough momentum that we can consider it 'in the bag.'"
The new index, cutely named TIGER (Tracking Indices for the Global Economic Recovery), is a joint effort by Brookings and the Financial Times. And TIGER shows that since the world began climbing out of the deep trough about the middle of last year, big emerging economies have roared ahead, while the developed world has experienced much more uneven results.
Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:d0fa4e14-88d2-41f9-8a19-896bdff9544b
Industrial production and trade have bounced back handsomely - total exports from the big emerging countries now exceed pre-crisis levels - but the employment picture remains cloudy and consumption has yet to develop a new head of steam.
"It's much easier at this stage to list all the things that could derail the recovery," Prof. Prasad says. "But all of those things are still conjectural. The reality, and the data, is that things are looking better."
So Prof. Prasad calls himself "cautiously optimistic." But by no means does he dismiss the potential rock falls on the steep road to recovery. Job growth remains weak in key economies and U.S. consumers have shown no inclination to resume their debt-fuelled spending binge.
He also worries about the euro zone. If the region's woes worsen, the U.S. buck will get even stronger, making it tough for the Americans to export their way out of recession.
|
An Investor's Guide to Understanding the Economy by Gary Rabbior:
|
China gets hurt too. With its currency tied to the greenback, shipments to Europe will become more expensive, further curbing demand in a slowing market that already matters more to the Asian giant than even the U.S. does.
Then, there's all that public debt expanding at an unsustainable pace in the advanced economies, which is bound to lead to more instability in the years to come. And if that's not enough for anyone's wall of worry, there's also the risk that more capital will pour out of advanced economies into the emerging world at levels that can't be absorbed by overstretched financial systems.
Gee, professor, if that's the cautiously optimistic view, we'd hate to see what happens if the data turn negative.