Will there be a soft landing for the global economy?
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A large headline in the Financial Times proclaimed: “Global economy heads towards a soft landing.” Here at MoneyWeek we watch the markets, and the market commentary, too.
The Market, we have found, is like a woman – coy, changeable and contemptuous of our efforts to understand her. Where is she headed? We might as well be a golden retriever trying to decipher the Tokyo train schedules. But market commentary is more manly – logical, understandable… and thoroughly predictable. Just read the papers. You will find comments you can count on; they are almost always wrong.
We say that in earnest admiration of the elegant way in which the universe is designed. In order for the markets to function as they do, most investors must be deceived. A developing bull market requires that most people distrust it. If not, they would jump in right away and bring the whole thing to a premature conclusion. Likewise, a market peak needs a preponderance of bullish investors at the very moment when bullishness is most unprofitable. The financial media, amplifying popular sentiments rather than questioning them, helps investors arrive where they shouldn’t be exactly when they most shouldn’t be there.
What the article in the FT foresees is the gentle descent of the entire world economy. How do they know it will land softly? Two hundred and forty economists have said so.
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“Economic growth is set to slow this year and next amid rising interest rates, weaker house prices, high commodity and energy prices and fresh geopolitical tensions,” the FT summarises the 12-score economists. “The global liquidity bubble, which propped up global growth for so long, is now being pricked by central banks desperate to stem surging consumer price inflation.”
As near as we can tell, the league of extraordinary economists is right so far. They have only to look out the window; the sky is so dark with inflation hawks, it looks like a scene out of The Birds. All the world’s central banks are tightening up, curtailing liquidity and putting pressure on bonds, commodities and stocks.
No, it is not the landing we doubt. That has been well reported. It’s the qualifier ‘soft’ that we wonder about. How do 240 economists know we will have a landing that is soft rather than hard? How do they know what mood Ms Market will be in tomorrow or the day after?
They don’t. They have no more idea than we do. But their unanimity gives us a clue about where the money will be made. With so many people counting on a soft landing, the smart money must be betting on a hard one.
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