Reflections upon the past few years bring out valid criticisms about ‘being wrong.’ I have made no secret that I favor the bearish interpretation of eventually the stock market, but immediately the economy. The erosion and attrition I describe does not look like anything seen before, except the months and years immediately preceding the Great Recession. But that inevitably brings back the rejoinder that there is no such immediate danger right now, as bad as the economy may be there is nothing financially equivalent to the conditions that existed prior to August 9, 2007; with the further inference that a floor exists, economically speaking, today where a trap-door was present then.
What we are really describing, as investors, are the risks to the asset case as it exists now. The optimistic view, which is represented by almost every mainstream economist and policymaker, is really the basis for what they would like to believe is a monetary panacea and thus bull market. The economy is promised to be as a full recovery each and every year, to no ultimate avail. As Stanley Fischer put it recently:
Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back. Indeed, research done by my colleagues at the Federal Reserve comparing previous cases of severe recessions suggests that, even conditional on the depth and duration of the Great Recession and its association with a banking and financial crisis, the recoveries in the advanced economies have been well below average.
Even reading that acknowledgement you realize what the bull case actually is – it is not the recovery or the economy as it exists, it is the promise of one and the plausibility for that promise. Under that paradigm, the market doesn’t care whether orthodox economists are ‘right’ as much as I may be ‘wrong’, only that there is always next year.
This post was published at David Stockmans Contra Corner on September 26, 2014.
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