So many things collapsed in price from last September through the end of the year, only to bounce this year: shipping costs, most commodity prices, corporate debt prices, and emerging market stocks and bonds. It's enough to make you think that it isn't just a coincidence; that global economies hit an airpocket last September but have since begun to recover. Equity markets haven't bounced yet, but virtually all equity markets around the world have stabilized over the past several months, and many are up from their lows.
It's therefore quite tempting to wonder whether the recent and ongoing bounce in commodity prices, shipping costs, and corporate bond prices will be replicated in the equity markets. I think it will. I think the improvement in shipping costs, commodity prices and credit spreads reflects an improvement in the underlying economic fundamentals. The U.S. and global economies are not in free-fall, they are in the early stages of recovering from what was a sudden and massive loss of confidence in the global banking system that paralyzed commerce.
Whatever solutions Geithner gives us tomorrow, and whatever the fate of the faux-stimulus bill in Congress this week, if equity markets improve, it will not be solely due to the helping hand of government, it will be due also to the market's ability to recover from its own excesses.