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MARCO WERMAN: Workers of the world may be angry and frustrated, but the world's stock markets enjoyed something of a good month in April after half a year of dramatic declines. The World's Matthew Bell reports on what they see that the rest of us can't.
MATTHEW BELL: Chrysler's going into bankruptcy; Americans banks are stressed; there's a pandemic knocking at our door; and the mighty US economy just shrunk by 6.1 percent. The International Monetary Fund says this country isn't alone. All but two of the largest economies in the world are expected to shrink in 2009. China and India are the exceptions, but the economic news from there is far from stellar. Yet somehow, all of this bad economic news has not pushed global stock markets into the abyss.
DEAN BAKER: I think there's an idea, “we've been here before, none of this is disastrous.†And certainly the idea that, you know, somehow we're going to fall off a cliff -- that's not going to happen.
BELL: Dean Baker, of the Center for Economic and Policy Research, says markets dove hard and fast in recent months as the global recession hit. Now, they've bounced back. However –
BAKER: Markets go all over the place. So you get excessive optimism. If we go back to the late 90's, irrational exuberance, markets just have a life of their own. They get too optimistic for the economy, they can get too pessimistic. So I don't put a lot of stock in market movement day-to-day, week-to-week, or even month-to-month. It's just not a good measure of the economy.
BELL: As they say on trading floors, even a dead cat bounces when it drops far enough. And Baker thinks that's what might be happening now.
BAKER: It wouldn't surprise me at all, that you suddenly get away with selling. That there's plenty of bad news out there, and it may suddenly turn. You've get investors that go, “Okay. I just made a lot of money.†So if you got in two months ago, and the markets up 20 percent or so, you've done real well for two months. So people cash out some of their profits and everyone suddenly focuses on the bad news, and it goes back down.
BELL: But Gus Faucher of Moody's Economy.com says markets look ahead, and they seem to be reflecting conventional wisdom that says the worst might be over.
GUS FAUCHER: In terms of both the global recession and the US recession, we're still talking, you know, not until close to the end of 2009. But again, the markets are forward looking, so they're saying, “Okay. We know there's going to be some bad news in the months ahead, but we do think that the US economy will start to expand – that the global economy will start to expand again. And therefore, given that, that profits will pick up, firms will be doing better, and we're willing to put up with the bad news over the next few months in order to be ready when the good news starts to come in.
BELL: Some recent glimmers of good news? Government stimulus money is starting to hit Main Streets here and abroad. Central banks have joined forces to cut interest rates. In Japan, the second-largest economy on earth, industrial production is slightly up. And most importantly, American consumers are starting to spend more. All that's perked up markets in New York, Tokyo, and London. They've risen by 7 to 9 percent in the last month. For The World, I'm Matthew Bell.
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