I think it is safe to assume Stephan Roach's column posted on Bloomberg has been making the rounds. I'm not an economist, and generally not a big picture type of guy. Though I do agree with Jean-Marie Eveillard, who said something along the lines of paying attention to the big picture while doing bottom-up style investing (if that's not exactly right, forgive me, I'm operating from memory here).
You've probably been hearing talk about bubbles lately. Ones we've had, ones to come, ones we're having now. I think we may well be experiencing a complacency bubble. But, hey, only time will tell.
Back to Roach and his Bloomberg piece. He lists four reasons we may see a double-dip in the global economy:
First, the financial crisis itself is far from over. The latest International Monetary Fund estimates put the potential for worldwide writedowns of toxic assets at approximately $3.4 trillion; so far, realized markdowns have been only about half that amount. This points to further earnings impairments for financial institutions and concomitant restraints on their lending capacity.
Second, the breadth of this global recession was staggering. At its low point in March 2009, 75 percent of the world’s economies were contracting. Typically, the figure is closer to 50 percent. This means it will be much harder to turn around this recession-torn world.
Third, the demand side of the global economy is likely to be restrained by a protracted pullback of the over-extended American consumer. In the face of a massive labor market shock to jobs and wage earnings, together with the bursting of property and credit bubbles, the consumption share of the U.S. economy is likely to fall by five full percentage points of gross domestic product -- from its current record of 71.2 percent to the pre-bubble norm of 66 percent.
And last but not least:
Fourth, the supply side of the global economy suffers from massive imbalances, especially China-centric developing Asia. While, on the surface, post-crisis resilience of the Chinese economy has been impressive, it turns out that 95 percent of the 7.7 percent GDP growth realized in the first three quarters of 2009 was concentrated in the fixed investment sector, which already accounts for an unheard of 45 percent of GDP.
We live in interesting times. Let's see what 2010 -- and 2011 -- have in store.
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