One Lost Decade Or Three?

Over the weekend, Charles Schwab issued a “tool” for investment advisors to help them “feel good” about what is expected for 2016. With investors increasingly talking about risk, and stock market risk at that, there is a counter-rush to reassure. Some of that is expected in places like this, but increasingly the disparity between the form of that encouragement and the wider awakening ends up on different planets.

Jeffrey Kleintop, chief global investment strategist and senior vice president at Charles Schwab, believes that there are good reasons to be positive about the future: Global economic data is generally exceeding expectations, and most forecasters expect 2016 to post the best global economic growth in years. He believes stock market investors can achieve positive rates of return and lower their downside risk, but they may be unlikely to act unless they can renew a sense of optimism and HOPE.

It is an exceedingly odd paragraph all around; contradictory in how it frames the global economy, touched with rainbows and unicorns about how you can “achieve positive results and lower…downside risk.” The second part obviously suggests what Schwab is seeing from its retail client business, as, again, investor uncertainty is starting to be unusual in a radical departure from the prior few QE-strewn years. However, the first part, “best global economic growth in years” is a touch disingenuous since the same was said about 2015 in late 2014 (and about 2014 in late 2015, etc.).

Furthermore, there is already a rush to downgrade next year by “most forecasters” including and especially mainstream, orthodox outfits like the IMF and World Bank – the very sorts of places that are normally cheering the way forward. The IMF in its latest October outlook sounds nothing like its unequivocally awesome reassurances from less than two years ago. First, October 2015:

“Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive,” said Maurice Obstfeld, the IMF Economic Counsellor and Director of the Research Department.

“Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth marginally but nearly across the board. Moreover, downside risks to the world economy appear more pronounced than they did just a few months ago,” Obstfeld said.

Compared to January 2014:

The report describes a global economy that is at a turning point. For the first time in five years, there are indications that a self-sustaining recovery has begun among high-income countries – suggesting that they may now join developing countries as a second engine of growth in the global economy.

The stronger growth in high-income countries reflects progress in both private- and public-sector healing in the wake of the financial crisis. In particular, the drag from fiscal consolidation and policy uncertainty is expected to ease sharply in the United States and in high-income Europe. The stronger growth in rich countries is expected to boost demand for the exports of developing countries and contribute to a modest acceleration in their growth. Overall, global trade growth which has been particularly weak is expected to strengthen over next few years reaching about 5.1 percent by 2016.