Looking beyond the fake recovery
I have been taking a bit of a break as my trip to the Ontario’s Lake Country winds down. It’s a beautiful place. But, as Marshall Auerback and I were lamenting, it has become the Hamptons of Canada as everyone from Toronto is up here for the summer holidays.
But, it has been relaxing. Since I came here, I have had a chance to get away and re-charge. The news in the world economy has been getting a lot better during my hiatus. Just this morning, data showed economic growth in Q2 in both Germany and France.
As far back as April, the data did point to a potential recovery in the US this summer. Here are two mid-June posts explaining how Paul Krugman, Richard Berner, and David Grenlaw saw this:
So, a lot more people are now saying recovery is at hand. Of course, it is not a done deal and I am still holding to Q4 or Q1. But, I did want to remind you all how bearish people were just two months ago (and feel free to comment):
Now we should take this opportunity to look through the present data and onto the longer-term future. We might have a recovery so what? What does the situation look like over the medium or long term?
As I see it, any recovery now will be somewhat incomplete given high consumer debt levels and the associated weak consumer demand. Structural issue remain in the property markets and banks are systemically weak. Nevertheless, with recovery at hand or coming, here are a few posts that attempt to look beyond the immediate reflation trade.
- Bernstein: What kind of recovery are we going to get? (May 2009)
- Green Shoots or Smoking Weed? (May 2009)
- Why the personal consumption data is important to the stock market (Jun 2009)
Don’t underestimate the power of printing money – or government stimulus. We have seen a herculean effort to stave off depression and this has clearly had a great impact across the global economy. But, stimulus does not solve the problem of structural weakness. The excess consumption in the U.S., the savings glut in Asia, the huge debt and leverage in Anglo-Saxon countries and the weak banking systems in America and Europe must be addressed during any recovery or…
To be continued…