Against the Tide: It’s a suckers’ rally
Only suckers believe that the remedies applied to the credit crisis have cured the underlying sickness. There’s more painful adjustment to come, and it could last two to five years.
There has been a recovery in risk asset markets in the past month. But this is a suckers’s rally based on the expectation that the credit crunch might be over and that there will be no systemic financial failure.
For the April fools, the credit crisis is over. The US medicine will turn the economy by mid-year. The housing overhang is fast disappearing. Europe is fine. And who cares about Japan anyway – it has been in recession for a decade. As for Asia and other emerging markets, they continue to boom. So buy, buy, buy!
However, in my view markets are ignoring the impact of the ensuing economic recession that is hitting the US and will spread globally. That will feed back into an extension of the losses in credit markets and lower financial asset prices.