The World (Economy) Is Flat After All, For Now
NEW YORK (TheStreet) -- Christopher Columbus proved the world was not flat, and I'm not one to question conclusions based on hard evidence. Recent events have indicated that the global economy is flat, though, or at the very least experiencing a flat spot on its road to recovery.
This plateau is generating a great deal of apprehension and may have to be proven wrong before investors re-engage and move beyond the recent subdued environment for equities.
|Christopher Columbus proved the world was not flat, opening up global trade. Now a flat economy is the problem.|
Looking back, it's not really a surprise that the recovery has hit a flat spot over the past few quarters. Turmoil in the Middle East, high gas prices, the persistent debt crisis in Europe and the catastrophe in Japan have all hit the economy broadside.In fact, if we had a crystal ball heading into this year that anticipated all of these events, it would have been a no-brainer to predict a stall in the recovery. And of course, the forecast for equity prices probably would have been more subdued than actual performance over the past few months. In many ways, the recovery has held up better than expected given unexpected shocks that have occurred over the past two quarters. So maybe a bit of optimism is warranted. The real anxiety affecting the recovery (and investor confidence) goes beyond the recent headline-dominating shocks. The U.S. and other developed economies are experiencing a lackluster economic recovery by any standard. The recent shocks flattened a trajectory that was subpar to begin with, and this is the underlying driver of persistent anxiety in the market. The factors contributing to this sputtering recovery are not easily addressed and will take time to fix. In the U.S., de-leveraging in the private and public sector must occur and this requires changes in behavior. Markets, notably housing and commercial real estate, need to correct. These are costly and complex processes. And governmental actions that are well-intended (like efforts to increase regulation to prevent future financial instability) come with compliance costs and inject uncertainty over the short-term, restraining growth. That's quite a bit to bear for any recovery. Add in a few unexpected revolutions, earthquakes and tsunamis and we find ourselves in an economic plateau that only adds to our angst. Monetary policy is still accommodating, key economic sectors are gradually rebalancing and overseas growth is still solid. We're anticipating a pick-up in economic activity in the second half of 2011 and an improvement in equity prices. The key for investors is to continue to focus on the healing process and whether or not we are on a logical course to support more robust growth in the future. Christopher Columbus eventually discovered that the world was not flat. And we will likely discover that this recovery will not be flat forever. >To submit a news tip, email: email@example.com.
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