Macroscope | Expect more hard times ahead, as bear market has just begun to stir

Today’s globalised economy is like a game of consequences – something done in one country has consequences in another, and ditto where different economic sectors are concerned. Failure to see this is why the seriousness of the current economic downturn is being dangerously underestimated.

At each stage of the game in 2018, a widespread view was that the gathering economic downturn would be of limited severity and duration.

Trade wars were containable, there was little fear of currency wars; debt could be managed and slowing corporate earnings would not affect stock prices.

This kind of myopia comes sometimes from plain inexperience or tunnel vision on the part of financial analysts (or their anxiety to preserve their bonuses). But all too often it reflects a failure to see trade, production, sales, profits, investment and confidence as part of a whole.

It was only the slump on Wall Street at the end of 2018 that woke people up to the fact that a crisis might be at hand. For a while, the mood turned from relative indifference to near panic. But views that “the bear market ended on Christmas Eve” and that all was well after all regained ground.

That was nonsense. The 20 per cent drop in share prices which the S&P 500 was registering by then from a September peak could easily reach 40 per cent before bottoming. The question is not how far the index has fallen but what reason there is for it or any other stock index to rise again in current circumstances.