What?
This from UBS economists Larry Hatheway and Kenneth Liew this morning, in response to news that Paulson and Bernanke were seeking a “comprehensive” approach to the financial crisis:
…While ‘comprehensive’ policy marks the beginning of the end to the latest and most severe dislocations in the financial markets, it simultaneously marks only the end of the beginning of the long unwinding of leverage, excess (residential) investment, and related asset price adjustments. In our view, the beginning of a genuine ‘bull’ market is not yet in sight.
The economists are calling for a slight tactical change – reducing safe haven assets like Treasuries bonds and moving into equities. Likely near-term effects of the Fed et al’s measures, according to UBS, are a recovery in stocks and emerging equities, tightened credit spreads, a sell-off in government bonds and stabilised commodities. But, here’s a (much needed) dose of pessimism for today’s monkey rally:
However, we believe it is critical not to lose sight of the reality that the underlying fundamental picture remains very challenged indeed. On our numbers, global growth will dip to 2.8% next year, well within forecast error of what is our demarcation of a global recession-2.5% world growth. Moreover, the US and the UK are in all probability already in or entering recession, while the Eurozone and Japan are not far off. Earnings expectations from analysts remain, in our opinion, far too high, particularly for 2009.
We therefore caution strongly against market participants over-reading the current situation. Pragmatic policy is certainly a step in the right direction. But the temptation to view the likely strong recovery of markets from stress-related levels is not the same thing as a warranted anticipation of cyclical recovery.
