A decade to forget

A lot can change in one year’s time! At the beginning of the now expiring year it seemed the world was on the brink of collapsing. In the U.S. lived great fear for the survival of such giants as Citigroup, Bank of America, General Motors and Chrysler. In the Netherlands Finance Minister Wouter Bos, had to rescue the large national banks from failing with billions of Euros. The EU announced to set aside EUR 500 billion in order to prohibit that Europe-wide the financial system would implode and could carry the rest of the economy in its downturn.
DoomsayersIt is inevitable that in these times of seemingly endless battle against economic and financial bad luck penalty preachers who spread their message of ever growing doom and gloom steal the show. In the U.S., the ever-gloomy Stephen Roach and "Dr. Doom" Roubini became media heroes. In the Netherlands Willem Middelkoop enjoyed respect as the prophet of crisis and depression. Mohammed El-Erian, chief strategist of Pimco, predicted even a "new normalcy". The structural economic growth would go down, unemployment would remain high and the welfare of large populations in the West would be severely corroded. Recovery?! What recovery?! The common theme in all these considerations was that happy days would never return to the U.S. and to a lesser extent, the message was the same for the EU. But how long is ‘never’?. Already in the second half of 2009, the picture started to change, to brighten up a little. This was reflected in the letters that were used to indicate the possible economic recovery. They went from L to U to W to √ and finally to V and the latter may still be called a surprise. Because that points to an old-fashioned strong recovery! Take the Dutch example: one year ago the Central Buro for economic Planning (CPB) predicted for 2010 an economic growth 0% or less, accompanied by a strong rising unemploymency reaching perhaps a level of 900.000. Much has changed and the scenario looks a lot rosier now. In the coming year, the Netherlands may enjoy economic growth of around 1.5% while unemploymency will not rises above 600 000. The real optimists are already starting to warn for an impending labour shortage in this country. Mmmm, this smacks of over optimism. ... ... .. And where does it come from? Where does the recovery come from? It seems likely that the many hundreds of billions of dollars and Euros, which central banks and governments all around the world have pumped in the economy during 2009 have not missed their effects. Is this really so? Especially many American economists are less enamoured of these massive injections of liquidities and dispute the beneficial effects. As a rule of thumb the recovery of the economy in the countries of the European Union has to come from outside this continent. This time the recovery is not depending on the U.S., but from the East and to be more precise from China. This country saw an economic growth of 9.6% in 2009 and has already calculated a growth rate of 8% for 2010. As a result of this fast growth China will pass Japan in 2009 as the second economy in the world after the U.S. Incidentally, those who think China will overtake the US as the number One economy of the world, are wrong. The U.S. economy is sized about $ 14 trillion and this number dwarfs China’s $ 4.75 trillion economy. Nevertheless, the fact remains that the strong growth of China and indeed of the entire Pacific region has given Europe the opportunity to export away the crisis. More good news in storeThere is a reasonable chance that Europe may fare even better in 2010 than is expected so far. This can and will happen when the locomotive of world economy, the U.S., comes on steam in 2010. According to many this is no longer to be excluded. Dean Maki, the best predictor of economic weather in 2009, now sees the U.S. economy grow 3,5% in 2010. The growth is due to the strong recovery in financial markets, which provides many Americans with more financial spending power. If consumers are starting to spend again in 2010 businesses will have to invest, so says Maki. Many companies have reduced their inventories in 2009 reduced to the bare minimum. The chief economist of Barclays Capital disagrees therefore fundamentally with the earlier mentioned Mohammed El-Erian. In his view there is little reason for a "new normalcy" . Barton Biggs and Marc Faber, who in March of this year advised clients to sell their bonds in favour of equities, endorse the optimism of Dean Maki. They foresee a rise in the dollar against Euro and Yen by 5% to 10%. The stock markets may rise at least 10% in both 2010 and 2011. The big surprise of 2010 however could turn out to be the U.S. housing market. Brian Wesbury, an economist from Chicago, points out that in 2009 only 550 000 houses have been taken under construction, but that the increase in population demands up to 1.5 million new homes under construction annually. Wesbury speaks even of an impending housing shortage. By the way, his nickname is Mr. Sunshine. A decade to forget The world will be say goodbye to the first decade of the 21st century without shedding a tear. This decade began with the explosion of the Internet Bubble and ended with the almost collapse of the financial markets. In the intervening years many people bought a house that was far too expensive and in many cases has fallen sharply in value. And to add insult to injury: investments in the past decade delivered nothing. In 2000 the AEX reached a peak of 701 points. Since then the stock market has almost halved. So much for your nest eggs and your pension plans!

I wish everybody a happy and sound 2010, but, hé let’s be careful, it’s dangerous outside!