Not Yet, Not Yet

The Globe & Mail's ROB had an interesting piece by Brian Milner yesterday on an interview with Harvard economic historian Niall Ferguson. While his is now a minority voice following the record run-up in stock prices this year, and while I believe his inflationary fears are dead wrong, he still bears listening to.

His concern is that the recovery that is underway is largely illusory, driven by unsustainable or one-time government expenditures and currency fluctuations. As he puts it

I don't think it's possible to infer from the stock market rally anything resembling a sustained recovery," the peripatetic professor says in an e-mail exchange. He rightly notes that at least half (and probably much more) of the third-quarter U.S. economic growth of 3.5 per cent stemmed from one-off government measures and that the consumer remains tapped out.

The stock market rally has been largely due to near-zero interest rates and a weaker dollar. In foreign currency terms there's been no rally.

And unlike so many others (see this entry in Paul Krugman's blog from earlier today) he puts his admittedly modest money where his mouth is, noting

I am out of U.S. stocks and currently have a modest cash pile. The commodity and stock market rally since March looks to me to be coming to an end. I am genuinely not sure what happens next.

Having narrowly avoided a Great Depression by using massive fiscal and monetary stimulus, we are now in uncharted waters.

Me too, Niall.