The problems with o'erweening optimism are these:
- Major markets are at previous highs (see charts). To rise through these highs will require either much better economic data and/or serious, credible stimulatory measures in the US and China and Europe. Comforting words from Ben are not enough. Not any more.
- The Chinese share market, though, isn't at previous highs. It's slumped. And that's because the Chinese leadership is embrangled in a leadership struggle, one that happens every five years, but which has had the bad taste to happen now when the Chinese economy is slowing sharply. No one wants to make key decisions until they know who's going to be boss. This is complicated by a shift in the Chinese growth model from export-led growth. Lots of big decisions and no one to make them, probably until November.
- The US (20% of the world economy) is still facing a "fiscal cliff" in January, when the rolling back of previous tax cuts and mandatory expenditure cuts will slice 4 or 5% from GDP. We've all seen the result of swingeing austerity in Europe.
- And, talking of Europe, even though a dim awareness that deep expenditure cuts and tax increases are counterproductive seems to be percolating through even to the Germans, so much needs to happen to generate a recovery -- an end to fiscal austerity; a common bank oversight model for the whole Euro zone; massive quantitative easing; and rate cuts. They will happen in time, but while we await, markets could get very skittish. Not so good, kitty malloona.
I'm taking some money off the table and watching sectoral swings like a ... fund manager should. Perhaps share markets will just go sideways for a while and then resume their uptrends. And perhaps not.