Tuesday, August 28, 2012

Global recovery perspective


Despite all the continuing problems in the Eurozone (the Euro Stoxx index is only up 38% from its recession lows, as compared to the 111% gain of the S&P 500), and the slowdown in China (the Shanghai Composite index is only up 25% from its October '08 lows), the global equity market has posted a 92% gain since early March '09, according to Bloomberg. We are still 20% below the 2007 highs, so it's still far from a complete recovery, but it's not unimpressive: global equity markets have recovered $23.6 trillion of their 2008-9 losses.

8 comments:

Bill said...

And I think history tells us when we have such an equity market recovery, the incumbent will be re-elected.

Scott Grannis said...

I disagree. Yes, when the stock market is up going into the elections, the incumbent usually wins. But this has been a very different recovery. Many things haven't recovered yet. The rally has not been driven by rising optimism, it's been driven by receding pessimism. There are still lots of problems out there, and those problems weigh heavily on Obama's reelection chances.

Bill said...

I hope you're right but Obama's odds of winning are pegged at about 60% by most and Romney's support is trending down per Rasmussen. Let's see if he gets a significant post convention bounce and if he's able to keep it up. I think folks like Obama better than Romney and are afraid they won't get their free stuff if they elect Romney.

Junkyard_hawg1985 said...

I admit that I really struggle on the direction of the stock market. If I look at the results from the Dow 30 in 2Q12, it was a case of the good, the bad, and the ugly. The good is that the P/E is a reasonable 14.5 . The total net debt of the Dow 30 fell for the 9th straight quarter and has fallen from $999 billion in 1Q10 to $569billion last quarter. The median enterprise value to revenue is at a very reasonable 1.69. The bad is that earnings are still below the 3Q11 results. Also revenue for the Dow 30 was up a tiny 0.1% in 2Q12 vs. 2Q11. The ugly is that the rate of revenue growth dropped for 26 of the 30 companies in the Dow last quarter va. the first quarter. The slowing of revenues will tend to lead a drop in earnings.

Squire said...

With a Romney win, we can have big monetary stimulus. If Obama wins we have to have monetary tightening.

William R. White, Federal Reserve Bank of Dallas, Globalization and Monetary Policy Institute, Working Paper No. 126, August 2012.

http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0126.pdf

The force of these arguments might seem to lead to the conclusion that continuing with ultra
easy monetary policy is a thoroughly bad idea. However, an effective counter argument is that
such policies avert near term economic disaster and, in effect, “buy time” to pursue other
policies that could have more desirable outcomes. Among these policies might be suggested18
more international policy coordination and higher fixed investment (both public and private) in
AME’s. These policies would contribute to stronger aggregate demand at the global level. This
would please Keynes. As well, explicit debt reduction, accompanied by structural reforms to
redress other “imbalances” and increase potential growth, would make remaining debts more
easily serviceable. This would please Hayek.

The danger remains, of course, that ultra easy monetary policy will be wrongly judged as being
sufficient to achieve these ends. In that case, the “bought time” would in fact have been
wasted19. In this case, the arguments presented in this paper then logically imply that monetary
policy should be tightened, regardless of the current state of the economy, because the near
term expected benefits of ultra easy monetary policies are outweighed by the longer term
expected costs. Undoubtedly this would be very painful, but (by definition) less painful than the
alternative of not doing so.

Dr William J McKibbin said...

One way to increase employment and get America working again would be to start a world war -- conscription of every able-bodied American not in college between ages 18-35 would significantly reduce unemployment -- conversion of the Department of Homeland Security (including TSA and all first-responders across the US) into a national police force would also provide for growth opportunities in law enforcement -- finally, militarizing US borders between Mexico and Canada would require vast expansion of both the Department of Defense and Department of Homeland Security (DHS) -- DHS is already formulating its case for a dedicated air arm flying under command and control of the Secretary of DHS -- massive new cohorts of government employees would no doubt create the biggest baby-boom in American history, which all spells huge new demand for houses, durables, and food -- this is the future I am anticipating regardless of whom is elected -- both the big government Democrats and military-industrial Republicans will support the expansion of the US military-industrial complex for these purposes, thus catapulting the US into a massive economic recovery that will propel the growth of capitalism over the balance of the 21st century -- the truth is that neither the big government Democrats nor the military-industrial Republicans have any alternative plan at hand -- accredited investors stand to win big -- everyone else should be horrified...

L.A. said...

@ Doc - big time gloom and doom, a ridiculous scenario IMHO. This recovery sucks and is painful for many but the economy will recover without the war scenario you describe. America and the world have recovered from far more dire circumstances in the past. America is in fact recovering now. Europe has the ECB who can step in at will to end their problems if worse comes to worse. US manufacturing is alive and healthy, we have a massive oil and gas boom that will be a boon for our country for decades to come, a functional although frustrating government, and regardless of what ECRI says we aren't in a recession or near one.

Dr William J McKibbin said...

@L.A., the US is perparing for war...