Stephen Roach Self Analysis

Stephen Roach's self-analysis in the guise of a Friday commentary contained the sort of inward look that could only have been prompted by having received hundreds of emails with links to commentary by others talking about his timing.

According to the legendary lore of high finance, the capitulation of the “last bear” is a classic sign of a market top. More than a few of my loyal — and not so loyal — followers have reminded me of this since I turned more constructive on the global economy (see my 1 May dispatch, “World on the Mend”). And wouldn’t you know it, in the past couple of weeks, equity markets have shuddered, bonds have rallied, and the “risk aversion” trade has been the rage. Is the curse of the last bear working its black magic once again?

I have to confess I have always found these superstitions ridiculous. First of all, I am hardly the last of anything — there are plenty more where I came from. Moreover, it’s always easy to look back on big market moves and find those who jumped ship just before the turn. Similarly, there are always the few who nailed the call — bullish or bearish — at precisely the right time. But the power of one — especially the proverbial last bear or last bull — is a joke in an era known for the democratization of markets. It may make good copy for the tabloid crowd. But it completely misses the substance of a complex and fascinating debate.

Yes, on 1 May, I changed my call on the global economy. In keeping with my job description, it was not a market call — but an economics call. Nor was it a call of unbridled optimism. But it did stress my newfound belief that the odds were shifting toward a more benign rebalancing of an unbalanced global economy.

Call it what you want - your comments did precipitate a big sell-off in stock markets around the world. Why don't you just take credit for it, then ask for a raise or take the summer off? Or ask for a raise and take the summer off.

That's what many of us would do - you're a market-mover now.

But no, instead of trying to cash in on this fortunate timing or even just having some fun with it, you've got to talk about rebalancing the global economy again.

Global rebalancing remains my core macro call, and with that call come a number of tough adjustments that I believe must still take place in the global economy. The good news is these adjustments now stand a better chance of taking place under orderly conditions. The bad news is they still have to happen. Three such adjustments have long been central to my version of the global rebalancing scenario — a shift in the mix of global consumption, breaking the daisy chain of multi-asset bubbles, and a realignment of the relative price structure of an unbalanced world. None of these adjustments will be easy, and there is a very good chance they will all have important — and potentially tough — implications for financial markets.

Yeah, yeah, yeah - the overly indebted American consumer who must consume less, central bankers that have used "über accommodation" to foster "the mother of all liquidity cycles", and a dollar that needs to go down.

We've heard that all before.

At least one of your readers would like to hear more about legendary lore, market tops, black magic, and superstitions.