Economist Gareth Morgan is taking a different view on where the world is going compared to number of fund managers.
As reported last week three fund managers, from AMP Henderson, Alliance and BT Funds Management, all painted a picture of the world economy that didn't look to bad. (see story
Managers sing from same song sheet here).However, at the same Association of Superannuation Funds Conference, Morgan promoted the view that the US economy will get worse before it gets better.
He says it's now "highly probable" that the situation will deteriorate, as opposed to being possible.
His pessimism is based on what the US consumer will do.
To date households have kept spending, which has pushed the economy along.
At the same time though debt levels have increased and consumers have been taking money out of mutual funds and investing in houses.
He believes consumers are going to stop spending and that will impact on companies' earnings.
Part of the problem in the sharemarket is that the average price/earnings ratios are quite "toppy", if consumers stop spending then it will become difficult for companies to achieve the earnings levels the market is expecting.
Added to this situation is a poor outlook in the labour market. While the US economy has been improving, jobs aren't being created.
Morgan predicts that if the scenario he outlined occurs, there will be significant redundancy levels.
Morgan says the unwinding of the US market is happening quite quickly, and that is a good thing. He says there is nothing worse than a slow unwind like Japan has experienced.
| « News Round Up | Sovereign takes regulation bull by the horns » |
Special Offers
© Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved