BUSINESS CLASS: Faith and the financial crisis

In this week's digest of eyebrow-raising business tales, we meet a doom-saying donkey, a Shakespeare-inspired economic realist, an optimistic Fool and an economist who just wants to dance.

Welcome to Business Class. Our travels this week take us all around the interwebs in search of green shoots of hope, dark clouds of doom and positive pessimists who party like it's 2009. So set your chair to recline and enjoy the ride.

How full, the glass?

A "common conundrum”, says Wikipedia, that illustrates the optimism-versus-pessimism question is, does one regard a glass of water filled to half its capacity as half full (the optimist’s view) or half empty (the pessimist’s view)? This week, we present a slightly different conundrum – having come through quite the global financial crisis, does one see civilisation going to hell in a hand cart in 2010, or rising, reinvigorated, from the ashes?

"If excessive optimism was the near-fatal pose in 2008," says Slate's Daniel Gross, "blind pessimism has emerged as the reflexive post-bust crouch. And it has led the economic establishment to miss yet another inflection point. ...The same folks who chased the recession down now are likely to chase the recovery up.”

Over at The Atlantic, however, James Fallows thinks we (that is, the West) all need to get some perspective. "If this is ‘decline,’ it is from a level that most of the world still envies," says Fallows. "What I’ve seen as I’ve looked at the rest of the world has generally made me more confident ... What is obvious from outside the [US] is how exceptional it is in its powers of renewal: America is always in decline, and is always about to bounce back."

At the Telegraph, Ambrose "Eeyore" Evans-Pritchard spies an "elephant in the global tent": "As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st Century Depression. ...The vast East-West imbalances that caused the credit crisis are no better ... and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy. Our long purge has barely begun."

Meanwhile, Byron Wein rather ambiguously lists "10 surprises” to look out for in 2010, including the US economy growing at a stronger-than-expected rate and unemployment dropping below 9 per cent. And he has good news for Japan, with a prediction it "will emerge as the best performing major industrialised market in the world” – a more optimistic view than that coming from inside Japan.Then again, if the price they're paying for tuna is anything to go by, he may well be on to something.

Over at The New York Times, Paul Krugman is keeping it real with a bit of help from Bill Shakespeare. "As you read the economic news, it will be important to remember... that blips – occasional good numbers, signifying nothing – are common even when the economy is, in fact, mired in a prolonged slump.” In other words, he goes on to say, we’re stuffed unless we keep up the fiscal stimulus program.

And MIT economist Simon Johnson also sips from a glass-half-empty, with an opinion that is quite commonly espoused at the moment – that we are all just merrily fiddling away until the next crisis hits (a phenomenon Infectious Greed blogger Paul Kedrosky calls "the ‘too bigger to fail’ problem”).

Johnson’s thinking is neatly set out in a slide presentation he has prepared for the AEA conference in Atlanta next week, which Kedrosky has posted on his blog. At one stage he appears to sidle onto optimistic territory, with a sub-heading in large, bold font that reads "Recovery likely around the corner, depending on balance sheets, confidence”. Beneath this, however, in a littler font, he qualifies; "But then so is the next crisis?” And then, in two tiny weeny bullet points beneath this, he adds, "Which will cost another 40 per cent of GDP, or more, for the US; and potentially destabilise the world.” Hmmm.

At The Motley Fool, Anand Chokkavelu is in two minds. In an article subtly titled Now Is the Time to Invest and Get Rich, he reminds American prospectors that "despite a newly growing GDP, the economic numbers are ugly. Unemployment is at 10 per cent, the next decade's annual deficits are projected to almost double our already $US12 trillion-plus national debt, and consumer confidence is still 'eh'. Yet we've seen the market rise 70 per cent since March. Yikes!" Yikes, indeed.

There is, however, a glass half full way to see all this, according to fellow Fool, Morgan Housel. "Following the 'this too will pass' philosophy really does work. ...The best days lie ahead. And those brave enough to dive in when no one else dares to touch stocks will end up scoring the multibagger returns." Brave, or rich.

But before all you intrepid investors retrieve the money from your mattresses, Pimco's Bill Gross has some cold water to pour on the subject. "In a new-normal world, growth will be half of what it was, profit growth will be half of what it was, and returns on almost all assets – including bonds – will be half of what we've grown used to," said Bill, in an interview with Time.

Now, for a refreshing sign of optimism from a most unlikely source, we cross to Nouriel Roubini, aka Dr Doom, who welcomed 2010 by dancing the night away alongside Roman Abramovich and 249 others (including Orlando Bloom, Miranda Kerr, Jon Bon Jovi, Kanye West, Jay-Z, Linsday Lohan, shall we go on?) at the latter's NYE bash in St Bart's – that's Saint Barthlemy to you, one of the Leeward Islands in the Caribbean that comprise the French West Indies (thanks again, Wikipedia).

Abramovich is one Putin-era oligarch who is clearly not feeling the pinch. According to reports, he dropped $5 million on the island soire, including $US500,000 for Gwen Stefani to host the party, $US1.2 million for performances by Beyonc and Prince and $US2.6 million for drinks and nibbles, etcetera. Says Business Insider, Abramovich bought the 70 hectare island retreat in September of last year (right about the time unemployment across the Eurozone reached a 10-year high of 9.5 per cent) for a trifling $US90 million – making it the most expensive price paid for a private home for 2009. Chin chin!

And Roubini is not the only one breaking out the fun bubbles. "We are, it seems, going into the new year on a more positive note, despite the recession," says Tracy Corrigan in the Tele(UK). "This is encouraging news, and has just inspired another resolution: this year, I'm going to drink more champagne."

Finally, we will conclude our journey where we started, with a thought from our friend, Mr Gross: "If credit means belief, since the credit crisis began two years ago, belief has been in short supply. Maybe it's time for a little blind faith.”

If you still need cheering up after all that, may we suggest you have a look at Dubai's huge erection, the Burj Khalifa, which was officially opened with much fanfare on January 4. The world's tallest tower! Surely a monument to optimism. Or is that depressing? So confused.

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