Global Economy in Twilight Zone as Stocks Suggest Growth1 – Bloomberg 09-18-12

Salient to Investors:

Joachim Fels at Morgan Stanley said:

  • It won’t take much to tip the world into a global recession
  • Central banks in Europe, China, U.K. and Japan will further ease, thereby supporting asset prices, preventing deflation, helping avert sovereign defaults and maintaining economic growth.
  • Central banks on their own cannot bring a sustainable recovery, which takes government action.
  • No matter who wins the election, the fiscal cliff is looming
  • Japan may hold early elections, and China’s leadership is changing.
  • The euro area still lacks fiscal ties as budget cuts compound recessions
  • Emerging markets are finding it tough to transform their economies.

Trevor Greetham at Fidelity Worldwide Investment said that while markets make fabulous economists, he expects a consolidation as softer data arrives in the near term.

Morgan Stanley expects a 20 percent decline in the S&P 500 to 1,167 through December. Credit Suisse expects the index will end 2012 at 1,500.

Andrew Garthwaite at Credit Suisse recommends buying, because central banks will continue to ease as long as QE benefits outweigh the costs – QE makes it easier for governments to cut debt by fanning inflation expectations and boosts growth by keeping bond yields low.

Morgan Stanley, Citigroup and PIMCO belive that the recent slowdown means growth is at a level that could suddenly evaporate into recession.

Jim O’Neill at Goldman Sachs remains a bull, saying:

  • The likelihood of another global recession remains low
  • U.S. households use record-low interest rates to pare debt
  • Home prices are signaling a bounce
  • ECB has committed to keeping alive the euro – troubled nations, including Spain, have turned more competitive
  • China is transitioning to higher quality expansion based on local consumption

Mark Mobius at Templeton Emerging Markets said Fed continuance on feeding the market until employment rebounds and ECB and Bank of Japan pumping money will be very good for stocks and emerging markets.

Srinivas Thiruvadanthai at Jerome Levy Forecasting Center believes easier monetary and fiscal policies can deliver only a contained depression by helping offset the financial volatility and balance-sheet repair that would otherwise spell a deeper slump. He predicts fragile global growth and potential instability so recommends investors stay defensive by buying U.S. Treasury securities.

Saumil Parikh at Pimco said on Sept. 12 that the longer the expansion remains lackluster, the more precarious economies become, risking cost cutting, labor shedding and inventory reductions that constitute a typical recession.

JPMorgan Chase’s international all-industry purchasing-managers’ index is close to June’s three-year low of 50.1. Corporate bellwethers FedEx has reduced its profit outlook.

Nathan Sheets at Citigroup said historically when U.S. growth slid below 1.5 percent, expansion typically dropped 3 percentage points in subsequent quarters, and growth elsewhere mapped up to 30 percent of the U.S. decline.

Read the full article at http://www.bloomberg.com/news/2012-09-17/global-economy-in-twilight-zone-as-stocks-suggest-growth.html