GLOBAL - Investors know that there is a strong incentive for company directors to kitchen sink and lump all the bad and doubtful corporate news into the current quarter, according to Barclays Global Investors' (BGI) monthly market commentary for December.
Noel Mills, BGI asset allocation strategist, says in the report: “Analysts and investors are expecting it. Getting it out of the way now provides a stronger base for recovery next year. The question is merely whether investors have become too sanguine, too quickly for their own good.”
He adds: “Given the extent of US monetary and fiscal easing, and the additional help from a weakening energy market, it is hard to believe that the US economy will not recover next year. Only the timing and strength of that recovery remain in doubt.”
But, the strategist qualified his statements by saying: “This is not to dismiss the threat of a Japanese-style slump as hyperbole. Rather it was the Japanese experience of the last 10 years that provided the Fed with a comparator of what not to do in response to an asset price bubble.
“It was not so much the remedial policy measures themselves that failed Japan, but rather the dilatory and ambivalent way in which they were implemented. The Fed in contrast has been both speedy and resolute in its action. Without such timely and decisive intervention, the US economy could well have slipped into much deeper trouble than now looks likely.
“Moreover, we are not yet at end game as far as the downturn is concerned. The ongoing need for personal and corporate sector balance sheet repair suggests that the recovery will be weaker than may at first be inferred from the size of the policy response. In other words, much of the rise in discretionary incomes will go into savings rather than spending.”
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