We have heard the market talk about V, U and W-shaped recessions, but now we have discussion on the inverted square root sign recession from George Soros, and Alphaville. This shape suggests a recovery followed by another decline and then flat or low growth. Are we trying to over-think all of these scenarios?
Right now the focus should be on the near-term and that means two questions. One, will the current upswing have legs after accounting for fiscal stimulus and two, will the current business cycles continue to be synchronized?
The latest numbers suggest that confidence is improving but there is not a strong consumer led recovery. Manufacturing is increasing to offset some of the inventory decline. Auto sales had a gain and housing has generally come off the bottom, but most of this effect is based on active government programs. Growth has been pushed forward through incentives. This is an issue with all of the global stimulus.
The synchronous business cycle issue will effect the relative changes in interest rates and equities. Right now we are seeing a growth pick-up in many countries, but there has not been any change in monetary policies. Short rates are all low and there is little expectation of an increase between now and the end of the year. The break-out or break-down of growth will be the major theme to look between now and the end of the year. This change will be the driver for asset price opportunities.
No comments:
Post a Comment