Deep in the August doldrums, it's plain that a cloud of nervous uncertainty has again descended over the markets and is here to stay for a while.
Cash is heading for the sidelines or pouring into the perceived safety of bonds. Most benchmark stock indexes continue heading south, and investors still deeply committed to equities are no longer jumping for joy at any fitful signs of recovery. Indeed, some may be breaking out in hives at the thought of what awaits them when fall crash season rolls around. It could make the selloff of late spring seem like a romp on the beach by comparison.
Friday's contributions did nothing to quell the rising summer doubts. We learned that U.S. retail sales climbed slightly in July, the first positive result in three months. And the latest gauge of U.S. consumer confidence rose nearly two points, beating average estimates by a slim margin. But the headline attached to one market commentary said it all: "Economic data wasn't completely terrible today."
The Wall Street Journal did its part by publishing its latest survey of 53 economists. Their preferred choice among the risks facing the U.S. economy (and by extension, ours): "too few jobs, too little wage income and too little consumer spending."
There's never a problem digging up a gloom-and-doom type to underscore the market risks (Nouriel Roubini is on plenty of speed dials) or equally confident stock-market bulls (hello Jeremy Siegel) to trumpet the opportunities. What's harder to find are people who have a firm grasp on the big picture but are as perplexed as the rest of us about where the heck things are heading.
Less than two years after the largely unpredicted near-collapse of the global financial system, we have entered a new Age of Certainty. Economists, market watchers and policy makers make confident pronouncements about everything from the future trajectory of stocks and interest rates to whether we face a deflationary or inflationary future, even when they take diametrically opposed positions. Yet if recent history tells us anything, it's that a remarkable number of them will turn out to be wrong.
That's why it's so refreshing to talk to Dylan Grice, the perceptive and often provocative global strategist who plies his craft as half of a two-person "alternative view team" with Société Générale in London.
Right off the top, Mr. Grice acknowledges that he's not particularly good at market predictions. "I really wish I was," he says with a laugh. "Your dart throw is as good as mine."
Then I wade into the heated debate over whether governments should be focused on repairing their balance sheets or throwing more stimulus money at faltering economies. But Mr. Grice is reluctant to come out to play.
"It's kind of a waste of time," he says flatly. "I find it very puzzling that so many economists have rabid views on both sides." His own view? Politicians talk a good game of fiscal prudence, but most have no plan to commit career suicide by trying to force it down voters' throats in the midst of hard economic times.
In the end, Mr. Grice says, most governments will undoubtedly opt for the time-honoured method of dealing with debt woes: cranking up the printing presses and inflating their way out.
He's constantly surprised that so many experts are so confident of the impact of particular policy responses. For instance, renowned economist Richard Koo has argued that the historic stimulus spending by the Japanese government after 1990 was hugely successful because it prevented the country from falling into a 1930s-style depression.
"How on earth does he know that this is true?" Mr. Grice asks. And when Nobel laureate Paul Krugman, the world's most ardent advocate of heavier stimulus spending, warns that the Austerity Now crowd risks triggering another depression, how does he know?
Then there's Jean-Claude Trichet, the stimulus-hating European Central Bank chief, telling euro zone governments that fixing their debt-choked balance sheets will stimulate economic growth. Really? Based on what evidence?
World financial history is replete with a long succession of policy mistakes, Mr. Grice says. "We're in that kind of territory now. The reality is that if governments do try to pare back their expenditure, then that's going to have an effect. The recovery's going to take longer to entrench itself and unemployment will stay higher longer."
At the same time, if insolvent governments do further damage to their tattered balance sheets by boosting spending, they are bound to bring forward their day of reckoning. Just because the bond market has so far given no sign that it's unhappy about financing the soaring deficits of the U.S. and a handful of other governments at historically low rates, it doesn't mean it won't one day turn on them violently. Just ask the Greeks. They had no advance warnings either.