Whither Recovery?
SEARCH BLOG: ECONOMY
I thought I was the only economy grinch. I've tried to be upbeat, but something seems to be missing that keeps bothering me. Jobs? Yes, that's it. Wait... business activity? Yes, that's it. Wait, government fiscal responsibility? Yes, that's it. Wait... housing market? Yes, that's it. Inflation? No, that's not it. Wait... that's not it?
Well, it just seems that without demand, it is hard to have a shortage of supply. And without demand and too much supply, it seems hard to have inflation... because... where is the pricing pressure? Even as the value of the dollar goes down versus other currencies, the prices of most commodities... even oil... seem stalled. That means prices are actually declining worldwide.
Maybe it is just me. Wait... it's not just me. Alan Abelson at Barron's seems to have the same misgivings or similar ones. Actually, he may be more of a grinch. From the September 14 issue of Barron's:
Our lack of enthusiasm for the spirited rally that has lifted hearts and portfolios here and 'round the globe is not, you may have noticed, widely shared. And we're quite aware of John Maynard Keynes' admonition about the wisdom of changing your mind if a change in the facts warrants it.
But the lack of company has never bothered us, and while we don't hold that the crowd is always wrong, more often than not, in the end, it is. Nor have the facts changed. There's nothing particularly startling or profound behind our negative stance. Essentially, it's grounded in the continuing absence of concrete evidence that, as the market action strongly implies, the economy is about to take wing.
Mr. Abelson goes on...
Employing his usual restrained prose, Société Générale's Albert Edwards articulates some of these misgivings in his latest weekly screed: "It's almost as if the biggest credit bubble in history never occurred. Investors are increasingly convinced that a sustainable global recovery is emerging out of the wreckage. All praise to the central bankers for saving the world! I'm waiting till someone writes about the return of the Great Moderation and suggests Ben Bernanke is the new Maestro. Then I'll know the lunatics have taken over the madhouse... yet again."
Take a look, he says, at the ever-shrinking rate of bank lending to the private sector around the world, which "makes it as clear as the nose on my face that the global economy is still very, very sick." The problem, he contends, is that the deleveraging that invariably follows a boom gone bust is starting to unfold in earnest.
Contrary to the prevailing view that the oodles of stimulus that has so thoroughly soaked economies worldwide will lead ineluctably to inflation, he's adamantly convinced deflation is lurking around the corner, poised to pounce next year. He cites the Baltic Freight Commodity Index, now languishing 40% below its June high, as a telltale sign of lagging global demand and an ominous portent of the gathering deflationary trend.
Okay, I feel better now. I'm not nearly as far out there as Mr. Edwards.
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