Pacifica Partners’ Financial Post Weekly Column – Sept 30th 2009
As we make the transition from the lazy days of summer to the fall, most investors are enjoying the first extended period of optimism in quite some time. We have seen the markets come back from the freefall they were in and economists and market strategists are now talking about the recovery at hand.
One issue we have taken with all of the talk about “economic recovery” is that there seems to be a sense that economic recovery is a foregone conclusion. That is the idea that economic recovery follows recession as sure as night follows day. However, some economists are of the opinion that “this time is different”. This school of thought says that trying to stimulate the economy with lower interest rates and trying to induce more “borrow and spend” economics is what caused all of the problems in the first place. They state that it will take longer for the economy to rebuild itself this time. They state that what we are seeing is a deleveraing of debt in all aspects of the economy. In turn, governments have taken on the burden of trying to jump start the economy with borrowing and spending of their own.
As off base as the arguments were only a few short months ago that implied that the world was headed into another Great Depression, perhaps the markets’ current enthusiasm is almost as equally misplaced. Add to this equation the possibility that the stock market is not as compelling a value as many would argue and we have a reason for investors to become more cautious – not bearish but cautious. Why is this so?
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