Thursday, October 25, 2012
Global Recession Warning: Out Of the Woods but Headed Into a Dense Forest
Lackluster growth is all we have in US, despite Federal Reserve’s “do everything it takes” attitude. Recession struck Europe isn't showing any signs of recovery, rather its spiraling deeper engulfing more regions in to a depression like scenario. Asia still has some growth momentum going, but outlook remains bleak as china continues to lose steam. Despite all that negativity around the globe, stock markets have shown a decent performance on the back of consistent efforts from central banks globally. Now the question remains: Will the economies rise up to the expectations of investors, or its time we buckle up for one more recessionary ride?
I fear that what we experienced during the financial crisis was just a glimpse of what is there to be seen in the next 3-5 years. With all that money printing what we really did was an attempt to defy the very basis of economics. Did we succeed? We definitely managed to restore some confidence in the financial system, but this could be temporary as ground realities have only worsened over the past few years. It’s possible, that we might find ourselves struggling with similar issues in the next decade as well.
At one point, it appeared that we were getting out of the woods, but now it seems that it was a tiny grassy patch leading to a dense forest.
Monetary easing has made economic realities easier to swallow, but that may not last long. We could see de-leveraging happening at a pace that has never been witnessed before, and that will certainly be the most painful phase for global economy. I can’t imagine the political and social implications of such a scenario, but that looks like the only outcome of tampering with laws of economics.
The current risk-on trade is insignificant! We can see all the efforts of last three years or more getting wiped off in a matter of days following a key event. It’s anybody’s guess what that event would be. I bet it will begin with China dumping US treasuries.