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BANKING

Bond Outlook February 4th

One month into 2009 and the world seems to have reached a fork in the road: either some positive fruits of the many rescue packages will start to appear, or the recession will really worsen and turn into a depression.

If any one issue will determine which way the economy now heads it is the role of protectionism. Historians should remind politicians over and over again that the Great Depression of the 1930s was made much more severe, even caused by, trade protectionism (which started in the U.S.A. and was consequently implemented by the other industrialised nations). That risk is ever present and is now associated with credit protectionism. Investment flows are now also under threat causing the risk of what Gordon Brown calls "deglobalisation", which will be a major theme at the forthcoming G20 conference.

The best way to avert both types of protectionism is for the stimulation packages to show some signs of success. Whilst we see some early signs, we admit that only our optimism leads us to believe such packages will be the panacea everybody hopes them to be.

  • While US house prices are still falling in the USA, sales of existing homes are picking up as a result of the greater affordability (lower prices and financing costs)
  • US television is carrying advertisements for mortgages at 4.6%,

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