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ING economist Mark Cliffe is ‘tired of being miserable’

Some famously dismal practitioners of the dismal science have been sounding a tad less gloomy in recent weeks.

New York University economist Nouriel Roubini, better known to market watchers everywhere as Dr. Doom, has been talking up equities and talking down gold. David Rosenberg, who does his crystal-ball gazing for Gluskin Sheff + Associates in Toronto, has turned into a Canadian equity bull, in part because of improving U.S. and global economic conditions. Morgan Stanley strategist Adam Parker, a leading Wall Street grizzly, tossed his bearish outlook in the trash some months ago after being wrong about the market for too long.

But a tumultuous week in the markets, marked by mixed economic signals and a slew of "clarifying" remarks from central bankers that left investors more dazed and confused than before, provided fresh ammunition for those of bearish bent. That seems especially true when it comes to evaluating longer-term prospects.

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"A new period of uncertainty and volatility has begun, and it seems likely to lead to choppy economies and choppy markets," Dr. Roubini wrote in a commentary for the Guardian on Friday. "Indeed, a broader de-risking cycle for financial markets could be at hand."

Marc Faber, who has also laid legitimate claim to the Dr. Doom title for the dark predictions he gleefully dishes out in The Gloom, Boom & Doom Report, told CNBC: "Longer term, the market is far from oversold. It still has considerable downside risk everywhere."

None of this comes as any surprise to veteran economist Mark Cliffe, who recently told a design conference in California that "pessimism is cyclical" and marches in lockstep with every downturn. He pointed to a flood of gloomy financial books with such uplifting titles as The Five Stages of Collapse and When the Money Runs Out and suggested that in assessing future market or economic performance, forecasters, like most of us, are overly influenced by recent experiences and such other all-too-human traits as loss aversion and regret.

"There's a tendency to extrapolate from recent problems not just into the medium term but also into the long term," Mr. Cliffe, ING Group's chief economist, tells me from London. "And it's interesting how it suddenly gets conflated with things that we knew about all along, like aging [populations]. That feeds into the current mood and extends the short-term pessimism into long-term pessimism that I think is ultimately surmountable with a bit of creativity."

Mr. Cliffe, who has been known to be plenty bearish when called for – on U.S. housing, for instance, as early as 2006 and the euro zone crisis – has opted to challenge this psychology of negativity.

"Tired of being miserable, I decided to take on the fashionably gloomy view of the long-term outlook," Mr. Cliffe declares on his personal website, "While the devil may have the best tunes, the more I thought about it, the more the optimistic view began to appeal. After all, economic forecasters have hardly covered themselves in glory in the past."

The key, he says, is to look past the necessary deleveraging now occurring and which he regards as a medium-term problem. The fix is already well under way in the U.S. and some other economies. "They've been working on this for five years now. There's further progress to be made, but this isn't going to last forever. ... So if you take a view beyond, say, five years or so, particularly given the structural changes that are taking place, I think you can be more optimistic."

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Remarking on the nature of business cycles, the late influential British economist A.C. Pigou once opined: "Prosperity ends in a crisis. The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant."

This cyclical pessimism has extended its tentacles into the corporate sphere, where executives would rather sit on large piles of what new Bank of England Governor Mark Carney calls "dead money" than put it to work in the economy.

"We need to change that kind of psychology," Mr. Cliffe says. "What will be the trigger is hard to say. But economic history would suggest that it will come at some point."

Still, he acknowledges that it's easier to go with the tide. "It's the old adage that it's better to get it wrong in a crowd. There is a sort of herd mentality, and it was fashionable to be pessimistic. The media also tends to prefer bad news over good news. So that's why it is indeed a rather dismal science and it has become more dismal as a result of the crisis."

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More


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