Neither do I. As I said in past columns, I think this downturn is going to end up being short and shallow because of the same reasons set forth in Malpass' latest study. "Global fundamentals are reasonably solid in terms of interest rates, innovation, and profit opportunities, arguing for a recovery in coming months. The powerful Washington stimulus, combined with huge reservoirs of liquidity built earlier in the decade, should spur a rebound in credit markets, equity markets and gradually in economic activity," Malpass writes. "Looking forward, we expect to see indicators of recovery in coming months -- narrowing credit spreads, a moderate decline in conforming mortgage rates, moderate jobless claims, higher equity prices, revived consumption growth in May and June, and then an increase in home sales and mortgage applications," he forecasts.
We are already seeing some signs why Malpass' outlook makes sense. With some exceptions, this month's quarterly corporate earnings reports have been unexpectedly strong -- not the signs of an economy plunging into a long recession. The global economy remains strong, too, as reflected in mushrooming U.S. export sales. It is hard to remember a deep recession when the world economies were growing -- as they are in Europe, Asia and much of Latin America. Wall Street, with its zigs and zags, has by and large kept its head in all of this, sending additional signals that the economy may be approaching a bottom. We see those signs when investors push the Dow higher, picking up cheaper stocks in good companies that have been pulled down by the undertow of a bear market. The plunge in the financial markets has had a lot more to do more with falling confidence in the economy's fundamentals than with the availability of cash, or as it is referred to on Wall Street: liquidity. There's still a lot of it sitting idle. "The percentage of cash on the sidelines as a percentage of market value is the highest it's ever been," says Richard E. Cripps, chief market strategist for Stifel, Nicolaus.
It's in this context that voters are going to choose between two sharply contrasting economic agendas in this election: the fear-based campaign that America is flat on its back, plunging in the abyss, with the only solution being to raise taxes on businesses, investors and consumers in order to grow the government; or the glass-is-half-full belief that we face economic problems we can overcome with pro-expansion tax cut incentives that will unlock the capital needed to create jobs and grow our economy.