The Economist on world economy

In this issue of The Economist, it paints a rather cautious outlook of the world economy. Recent economic data shows signs of the world economy could be in a recovery. But, that could be an illusion, the article warns.

Among many tricky issues, reading economic data is always difficult. Even if the economy is on its way to a recovery, the path is going to long and painful. During this recovery period, we will likely to see multiple up-and-downs in the market.

History doesn't repeat itself, but it does rhyme.

... between 1929 and 1932, the Dow Jones Industrial Average soared by more than 20% four times, only to fall back below its previous lows. Today’s crisis has seen five separate rallies in which share prices rose more than 10% only to subside again.

Why is it important for us to be cautious?

"... optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency".

I think the article is a good read. It gives a good overview of the current world economic conditions and intricate relationships between the government financial polices and macro- and micro-economics.

While the economy looks grim, but I have hope. The world's economy will eventually bounce back. In between now and then, there are many good investment opportunities. Individual investors need to be patient and cautious. The Economist article is a friendly warning that "those who try to time the market is a fool".

World Economy, Business