Have you noticed how the needle of that market compass you inherited swings randomly from North to South and back again, no matter how often you recalibrate?
We’re not in Kansas anymore, Toto, no matter how hard the equity market clicks its ruby-slippered heels together. The new normal is anything but; it’s old — three years old, to be precise — and it’s downright weird.
“Nothing we are seeing in a post-bubble credit collapse is normal,” according to David Rosenberg, the chief economist at Gluskin Sheff & Associates Inc. in Toronto. He is one of the few soothsayers who correctly divined the credit crunch while it was happening, in his previous job at Merrill Lynch.
On Aug. 9, 2007, petrifying money markets spooked the European Central Bank into handing 95 billion euros ($125 billion) to the banking industry. That turned out to be just the first installment of a global blank check to stuff the holes in finance with taxpayer money via government intervention.
If you believe the equity market, that cash is delivering economic salvation, with the Standard & Poor’s 500 Index recouping losses to rest little changed for the year. Look at the bond market, however, and record low yields on two-year Treasuries and 10-year German bunds suggest the future looks a lot more like a zero-growth world slip-sliding into deflation and the dreaded double-dip recession.
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