Observers such as legendary fund manager Mohamed El Erian believe that the financial crisis has precipitated a sea change that will take the West to a ‘new normal.’ That would be a problem. Meanwhile, however, Wall Street has returned to the Old Normal and is on track to reach record levels of compensation this year.
Seasoned observers of the global stage, such as fund manager Mohamed El Erian, believe that the financial crisis precipitated a global sea change that will transform the West toward a ‘new normal.’ The new normal that El Erian has in mind won’t be pleasant, however, as it implies an Age of Austerity in which Main Street pulls in its horns and downshifts from its fervid spending spree to a mu
The “credit crisis” caused banks to write down about $1.5 trillion, but that is the tip of the proverbial iceberg. The real consequence of the post-bubble deleveraging is the vaporizing of about $26 trillion in stock-market value worldwide, or about half of the valuation at the 2007 peak. The rally in global equities from the 2002 low obviously relied on an artificial abundance of liquidity.
This week we discuss the economic forecasting ability of the World Bank over the last decade, which, despite access to mountains of grassroots data, under-estimates growth in good times, over-estimates it during crises, sometimes misses crucial turning points and only occasionally gets things right.
While we reiterate our advice from last week, namely, not to let your long-term perspective on the market or the economy (whether bullish or bearish) blind you to the legitimate money-making opportunities in the short to medium term, we also acknowledge that navigating the relationship between the two perspectives is naturally confusing.