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How Far Will the Green Shoots Spread?
05/21/2009 12:00 pm EST
Jon Markman, contributor to MSN Money, says we’ve come a long way from the dark days of last winter, but the road ahead may have lots of bumps and turns.
This is how it starts, in small gestures and tiny steps. And any recovery that gets under way might well be tenuous and subject to fast reversal. But there really do appear to be stirrings of life in brutalized landscapes across the world as depression-fighting money from governments and central banks wends its ways from the capitals to the streets.
Analysts at ISI Group in New York now count 613 separate government and central policy initiatives in the past 21 months, with most in the past four months, all aimed at preventing the sort of discredited, self-centered parsimony that led to catastrophe in the 1930s.
Back in the darkest days of last winter, I feared that governments would try to go their own ways, raise tariffs to protect home industries, and fail to coordinate on the monetary attack. But the financial collapse of Iceland and the near-collapse of major money-center banks in Ireland, the UK, and the US in February appear to have slapped lawmakers across the face and made them realize we are all in this together.
Once you take financial Armageddon off the table, the appearance of a “new normal” looks like this across the world: rising industrial production in Brazil; higher housing permits and retail sales in Australia; rising consumer confidence in the US and Spain; Chinese stimulus spending and bank lending at more than $1 trillion, and purchasing managers indexes rising in the UK, Russia, Singapore, India, Turkey, the US, and Japan.
So, what does this mean for the stock market? Anticipation of these efforts has brought about an advance of about 30% from the lows, but it's easy to forget how far down the indexes still are. It's as if a $10 stock fell to $4.50 and then rebounded to $5.85. You'd be happy for the boost, but man, it's a long way from what you once considered fair value. The recent rally was probably just one of many that we'll see as volatility ebbs and flows on its way to a new equilibrium.
Bears will tell us that consumers can't spend because of their higher savings rate and lower wages, that the banking system is a mess, that home prices have an additional 20% to fall, that commercial real estate is ready to collapse and that tax increases and government [interference] will send prices back to their March lows.
Satyajit Das, the international banking specialist, told me that the chance of collapse now is lower but the chance of a prolonged period of low growth is higher—more like the 1960s and 1970s than the 1930s.
This sort of muddling through is probably the next phase of the economic cycle. The path ahead that seemed so foggy six months ago is clearing up. It's not a walk through a rose garden, but neither is it the twisted path in a dark forest filled with ogres that it seemed in November.
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