Wednesday, June 18, 2003

The FT rains on the bulls' parade a bit this morning (pay-only article; thanks LexisNexis!):
Should we all rejoice at all this happiness? Unfortunately, no. Bond and equity market rallies have been built on contradictory foundations. Bond market strength relies on the assumption of future economic weakness; equity market strength rests on a robust economic recovery. In the end, both cannot be right.
Hmm, the markets are forecasting two opposite and incompatible outcomes for the future of the US economy. Hmm. Did someone say "irrational exuberance"?

The General says the equity market mini-boom since March is not really based on future expectations. It is based on future wishes but driven by massive amounts of liquidity shot into the system by the Fed and by foreign investors returning those still rather high-value dollars to the US in search of some kind of positive return. Plus it doesn't hurt to keep the US consumer beast fed.

The FT's final word:
Investors should be careful. Equity market optimism is infectious, but economic fortunes have repeatedly failed to meet the predictions of imminent recovery over the past three years. There can no longer be any doubt that the 1990s boom and bubble left behind long-lasting imbalances that will not disappear quickly. Rumours of the definitive end of the bear market are greatly exaggerated.


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