As always, a coin has two sides. Today, let’s look at the other side of the coin that is my article on optimism …
First, bravo for your very positive and well-reasoned article “Is the Glass Half Full?” Very positive indeed! Can you elaborate on where the money comes from if, as seems correct, most developed countries are struggling or supporting questionable economies. I think that there are huge sovereign funds swishing around seeking good opportunities to invest, but is there enough? Is the IMF the source? Clearly, I just don’t know. Thank you for your insights.
I assume the reader is asking how a global economic recovery can happen if the developed countries are dealing with slowing economies and severe debt? Get ready, folks, here is a strong dose of economic optimism. Keep in mind, I only have room for generalities …
True, one can find plenty wrong in the world. Europe and the U.S. clearly lack leadership in dealing with their enormous debt issues. Clearly, the global economy has slowed and high unemployment and deflationary real estate in both the U.S. and Europe are big problems. The Middle East is still roiling and Japan is still recovering.
The collapse in global stock markets is breathtaking, but consider the pent up anxiety from seven months of calamity and extreme political uncertainty. Consider Japan’s unbelievable catastrophe, unprecedented globally bad weather, rapidly rising food prices, quickly rising gasoline prices, European sovereign debt fears, China tightening up to fight inflation, the Middle East burning, softening economic indicators, and, lest we forget, months of political bickering creating a real possibility of a U.S. default. No wonder the steam is whistling out of the kettle.
So where is the water in the glass? Half full, I say. Oil and other commodity prices are dropping fast. If the global consumer needed a shot, this is it. The ECB, China, Germany, and France will finally step up to buy Spanish and Italian bonds. If European debt issues needed a shot, this it. Japan is recovering faster than anyone imagined. If the global industrial chain needed a shot, this it. China is managing a soft economic landing. If the global economy needed a shot, this is it. Now that a credit downgrade actually happened, real political pressure is mounting for the U.S. to confront its debt issues. If the U.S. politicians needed a shot, this is it.
So from where does the money for a global economic recovery derive? International corporate balance sheets are much stronger than they were in 2008. Some $2 trillion in cash is waiting. U.S. interest rates are historically low, despite the S&P downgrade, and international rates are reasonable. Banks will have to start lending to make their profits. The ECB and the Federal Reserve have at their disposal the power and printing presses of the two largest economies the world has ever known. But most of all, with the cost of living going down, billions of global consumers are getting a break, the first in a long, long time. Add that powerful impetus and any “realist” can see we have a fifty-fifty chance of getting back on track. I see that as half full.
Trade in the day – Invest in your life …
