The International Monetary Fund has hailed the “broadest synchronised global growth upsurge since 2010” as the global elite arrived at the World Economic Forum in Davos on Monday in ebullient mood.
Consigning the troubles of the past decade to history, the fund's upgraded forecasts signalled the strongest global economic outlook since the start of 2010.
As they also report, in the same article:
The “overarching risk is complacency”, said Maurice Obstfeld, IMF chief economist. “We might be closer to a recession than you think.”
I linked to his opinion yesterday, here.
And there is more on this in the FT, in their daily column for investors called Auther's Note, where it is said today that:
In the very short term, it is easy to see why markets are gaining, and why it would be a bad idea to make an exposed bet on their falling in a hurry. That said, the problem of valuation grows ever more acute. The only encouraging point about the now almost universal belief that stocks are overvalued is that the belief is indeed so universal. It is when opinion is that strong that people can get most surprised.
I'm pleased that the world has come round to my view: it's taken them a while to do so. As that article also puts it:
[E]ven if stocks trade at a higher multiple these days, it does not matter: US stocks still look too expensive.
So, a crash is coming. It's not a matter of if, it's a matter of when. And that's true of the economy and stock markets based on this evidence. We're in that short lull before the storm breaks. Think of it as 1912 -13.
Then the question is something much more significant. This is what commentator John D had to say on this blog yesterday:
From an emotional perspective there is a huge dilemma with this evolving situation. On the one hand we ‘progressives' want to see the demise of neo-liberalism asap in order for it to be replaced with a more egalitarian, democratic and economically efficient governmental model. On the other hand we know that if/when it crashes, as predicted by you and other well-informed cognoscenti, those most likely to suffer the consequences will be those least equipped to do so, as is always the case.
Ideally a new ship would already be afloat and functioning as the old one sinks. But that's rarely, if ever, the case. Hence, it feels as if we're at an historically crucial moment when a small, albeit growing, number of ‘revolutionaries' (visionaries) are articulating the need for change but the majority (at least 51%) are relatively comfortable with the status quo and convinced by its rhetoric. Addicted to the material crumbs thrown to them, psychologically they cling to the message that things are getting better, and that to jump ship would be a reckless gamble. Safer to stick with what and who you know, i.e. the Hegelian strategy of ‘Problem — Reaction — Solution'.
Therefore, in the current socio-political climate, do you think it possible to achieve the requisite radical ‘régime change' without real downward, negative pressure on society? And how destabilising would that be? Maybe the only way forward is either via the ‘left-field' (action in an unexpected region) or simple revolution via street protests.
Am I being overly pessimistic?
I regret to say that I do not think John is too pessimistic. I think he's wholly appropriately pessimistic. Another chaos could be used by those who want to drive a neo-feudal and even fascist agenda. It is all too easy to see how. It is all too easy to see how Trump has laid the groundwork for that in the US, and that it could be emulated.
The question - and it is vital - is what can be done to prevent this? I have no certain answers. I am working on theory that provides alternative mechanisms for macroeconomic management. And I clearly think practical applications of modern monetary theory are important here. But the answer is beyond as well as within economic thinking. The answer has to be with the majority who want a very different world now, but have no political opportunity to win it.
The challenge then is to be ready in theory and practice. If only that might be the case.
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[…] The challenge is to tame the rest for practical use, as already noted this morning. […]
“The only encouraging point about the now almost universal belief that stocks are overvalued is that the belief is indeed so universal. It is when opinion is that strong that people can get most surprised.”
That sounds to me like a prediction that stock prices are going to keep climbing; defying the gravity of rational valuation. Why the writer thinks that is an ‘encouraging point’ is a mystery to me.
For now I think that is what they are saying
And what they’re also saying is predicting precisely when the crash will happen is hard
That it will is near as dammit certain
“And what they’re also saying is predicting precisely when the crash will happen is hard”
Nonsense , Richard. You just wait for them to ring the bell on the Wall Street exchanges when the top is reached.
Then you sell.
Though I’m not sure who you sell to. 🙂
So if you’re predicting a crash, when will it happen and how much will markets fall? The FTSE 100 or the Dow?
If you can’t answer those questions with even the vaguest of estimates than you are not predicting anything.
If I had a modest sum of say, £1,000,000 spread among FTSE 100 companies, what will it be worth in 1 year? Can you say? 5 years? Can you say? No. I thought not.
Saying every single year that ‘the crash is coming, the crash is coming’ amounts to nothing.
And suggesting that “the world” is coming round to your point of view suggests a form of mental illness that is worthy of counselling. I do hope you seem some.
Wow, you trolls are out tonight. Who sent you?
Has Worstall been writing some crap about me again?
Or was it my mate Guido?
“Wow, you trolls are out tonight. Who sent you?”
Nobody actually needs to SEND trolls they are trained to respond to particular stimuli.
(See Ivan Pavlov)
Anybody putting money into the market at present knows damn fine it’s high risk. (But nobody knows how to quantify the risk) This is white knuckle time. A great deal of money changing hands in an environment where fundamental analysis says it’s time to cash out (yesterday). But FOMO rules, and this is macho territory.
No wonder people are getting tetchy. These people don’t know how to live on £73.10 a week.
Real challenges are beyond them
“If you can’t answer those questions with even the vaguest of estimates than you are not predicting anything.”
In other words: ‘if you can’t give me free market advice then I’ll come at you with a lame non-sequitur’
Oh Dear. Someone tell him what a P/E ratio is.
“I’m pleased that the world has come round to my view: it’s taken them a while to do so.”
I was just wondering if you realised what a gigantic arrogant delusional bell-end that makes you sound?
You are entitled to your opinion, of course
But you realise that if that is true, then so am I? And that is all I expressed?
Maybe you need to do a little more thinking
Steve Day
“I was just wondering if you realised what a gigantic arrogant delusional bell-end that makes you sound?”
Well, it was actually the IMF guy that said:
“The only encouraging point about the now almost universal belief that stocks are overvalued is that the belief is indeed so universal.”
“Universal” – IMF – see? Now I am wondering if you now realise what a dim, inattentive, anonymous, little bell-end you are.
or might be?
Andy, you should read about Joseph Kennedy. He predicted the 29 crash when his bootblack gave him a share tip. He teamed up with some guys with money and bought as everybody began to sell. One president, a winning candidate, and a dozen senators later, you have the Democrat party
Graeme says:
January 23 2018 at 8:57 pm
“Andy, you should read about Joseph Kennedy. He predicted the 29 crash when his bootblack gave him a share tip.”
I thought the bootblack story was attributed to JP Morgan.
Joe Kennedy made a great deal of money manipulating the market in ways which subsequently became (theoretically) illegal. I think he was somewhere on the spectrum which runs from scallywag to out and out criminal. I’m led to believe he made a lot out of prohibition too, but that may be unsubstantiated rumour.
It would have been possible to make a great profit legally by investing in Canadian liquor producers as long as you weren’t directly implicated in the shipping of it across the border.
That’s about as much as I think I want to know about Joe Kennedy even if it’s not even entirely accurate. It is tempting to wonder if the sins of the father were visited on his sons.
How corrupt is the Democrat Party? In the Kennedy days it was very corrupt. JFK would not have passed the physical
Joe swindled GloriaSwanson. I think he is clear of bootlegging charges. But he did want Germany to win the war because of his Irish ancestry
Thanks John D – a telling piece. At the nub of it as I read it is that for lack of a clearly better alternative, we will stagger on with the current, destructive neo-liberal model until at some stage, perhaps after some critical event, we crash and burn and sometime later emerge from the wreckage. As we should know by now, whilst that might appeal to the more revolutionary extremes, in practice that will be extremely damaging to most people. There are plenty of examples out there in other countries.
The doom, gloom and paranoia has been particularly severe in this parish of late, and I’m not immune to that by any means. But given the good thinkers that come here, could we not put a bit more time and debate into what that new ship John refers to might look like? Do Corbyn/McDonnell really have all the answers, to the challenges of the next 15-20 years? Are they open to fresh ideas – if so why did their assembled team of advisors walk away? What’s missing or misunderstood in what they are proposing?
For instance, at the risk of inviting bucket loads of opprobrium, was absolutely everything under New Labour bad? Forget the personalities. Wholesale agreement on PFI, finance deregulation, Iraq – all profoundly wrong and destructive. But investments in health and education? All sorts of socially liberal measures? Over the last 40 years, I’d suggest that it was one of the better periods to be alive for most people. So what would you keep and what get rid of? Or is it a case of emptying the bath completely and we’ll get some new babies?
If you don’t like that as a start point, maybe suggest a better one that we can build on. I’ve suggested the Scandinavian countries as not a bad place to start. A lot easier to persuade that 51% of the public that John D refers to, to shift if they can see an example of what you are talking about. Higher taxes but higher welfare and good public services – I’d have some of that.
I’d prefer to have the new ship up and running and persuade the passengers to jump ship before the old one sinks. I know Richards working away on his bits of it. Perhaps we could do a bit more of that here?
I am open to posts on the issue
And that’s also what Progressive Pulse is for
I strongly encourage those who comment here often to write for it
I am bemused as to why you will not
“Ideally a new ship would already be afloat and functioning as the old one sinks.”
I’m not so sure. For some this may sound like some kind of cruel, hard-line realism but the reason that we got such positive economic and social reforms in the Post-WW2 era is that the Great Depression and the war were so bad.
If the old regime is not seen to fail and fail comprehensively then people will not fully reject it and they will not remember. There must be a period of hardship for remedies to be welcomed. A smooth transition will be not be suitably admired. It will be taken for granted and met with complacency. Lessons will not be adequately learned.
People may not fully agree with that but I dare anyone to say that there is no truth to it at all.
I don’t think an entirely smooth transition is possible
Disruption is inevitable
Marco – my pessimist side agrees with you. My early years were in the IT industry where many companies went to the wall, ignoring all the warning signs of change in the industry. More widely there are plenty of similar examples. Midland Bank pretty much collapsed and as a result transformed itself and did some much innovative stuff than the other banks including First Direct which is still with us, though the monster HSBC junked everything else.
So yes, more often than not, it has to get disastrously worse before people are prepared to change and try something different. But at a national level that can mean massive suffering and potentially death and destruction. Id rather try and avoid that. No prizes for just saying I told you so when it happens. Aint easy though