Big dipper

Returning from a two week vacation, Macro Maestro notes little has changed during his time off. The ECB and the BoE remain firmly on hold, the Fed is still talking about a new round of quantitative easing (while desperately hoping they wont need it) and the main issue for investors remains the strength and sustainability of the US economy. Friday's US payrolls report helped stiffen equity investors resolve, but other data have been decidedly weak.

Still, the debate about 'double dip' in the US, to Macro Maestro at least, seems to be missing the point. In particular, some economists last week argued a US double dip isn't likely because the parts of the economy that usually push GDP growth negative - notably housing and inventories - are currently so weak, it's hard to see them creating a drag large enough to pull the rest of the economy down. Macro Maestro doesn't take comfort from this kind of analysis. The debate is not whether the US will contract at some point in the remainder in 2010, rather it's about the underlying strength of the economy in 2011. If economic activity remains lacklustre, as Macro Maestro fears, then the US is still risking a Japanese style fate (and recent impressive data in Europe wont last). Worse, policymakers seem to be running out of ideas to get the recovery started again. And that means equity markets - which are still hoping for sustained economic expansion - would be woefully mispriced. Sharp falls in stock price could put us back to where we were in early 2009 (but without the hope of a V shaped recovery that lingered back then..)

(Macro Maestro's vacation didn't do anything to cheer his mood about the global outlook.)