Morgan Stanley chief economist and chief bear Stephen Roach has made a living in recent years predicting rain. As recently as September 24, he wrote to clients that 'we do not expect the [United States] and the broader world economy to experience a sharp, V-shaped rebound from this deep recession'. That was then, though, and now Mr Roach appears to see some light at the end of the tunnel. Prefacing his argument on economist John Maynard Keynes' famed retort to one of his critics: 'When the facts change, I change my mind. What do you do sir?', Mr Roach still wrote to clients on Monday that while the US economy was headed for a deep and sustained recession before September 11, the terrorist attacks had instituted 'a new set of circumstances which changes the macro call'. 'The modern day history of the US business cycle makes it quite clear that deep recessions are invariably followed by vigorous upturns,' he said. 'Needless to say, that's the silver lining of the glorious V-shaped business cycle.' Mr Roach said that the deepest recessions of the post-war era - those of the 1970s and 1980s - saw economic contraction of an average 3.2 per cent, followed by 'spectacular rebounds' of 7 per cent in the first year of recovery. Aggressive cutting of inventories and the pent-up demand of jittery consumers would build up a powerful stimulative cocktail once the worst of the recession had passed, he said. These natural shifts in the business cycle are coupled by the healing process which followed the September 11 attacks and the fiscal and monetary stimulus responses from the US federal government and Federal Reserve make up the final pieces of the recovery jigsaw puzzle. The natural movement of the business cycle 'should set up a classic cyclical turning point that will enable US policy-makers to establish meaningful traction with the economy by mid-2002', Mr Roach said. However, Mr Roach is careful to hedge his bets. On a sectoral basis, the US economy still looks ugly and there is the risk that - paradoxically - this recession may not be severe enough to trigger the V-shaped recovery that Mr Roach now favours.