Friday, May 29, 2009

face both currency upheaval and more bank turmoil, as investors lost confidence that the state can keep propping up the banks

TO BE NOTED: From Alphaville:

Gillian Tett: The shape of things to come…

In the ongoing compulsion among commentators and analysts to use metaphors for economic trends and phenomena (a la “green shoots”, “black swans” etc), there’s also a continuing fascination with shapes - for example, the “hook-shaped” global economic scenario, the “square root-shaped recovery”, the “U”, the “W”, the “V” and even the Roubini-endorsed “L” shaped recession - and so on.

Now, the FT’s Gillian Tett has put a new concept on the table - the “bank-shaped recovery”, courtesy of Pitman, the shorthand regime so dreaded by journalists and secretaries of yesteryear.

Pitman curve
The gnawing sense of unease in financial markets - compounded by rising bond yields - leaves all the “V”, “W” or “U” arguments in an uncertain place, she says:If you add the different elements of the picture together, my best bet is that the coming months will look like the first half of a “W”, but then flatten out into a straight-ish, horizontal line – meaning that after an initial, small rebound, there is likely to be a long, bumpy period of “flatlining”, as the forces for reflation and deflation pull in opposite ways.

But that scenario may be overoptimistic, in Tett’s view.

If government bond jitters turn more serious – say, if some auctions fail or there is serious political instability – it is entirely possible to imagine a far darker scenario, in which faith collapses in government finance. If that occurs, we would face both currency upheaval and more bank turmoil, as investors lost confidence that the state can keep propping up the banks.

However, if that government bond crisis does not materialise – which remains an “if” – then the resulting outlook looks rather similar to a symbol that is already plastered all over Tett’s notebook.

Many years ago, when I was a rookie reporter, I learnt the Pitman system of shorthand. And it just happens that the half-squashed, assymetrical “W” pattern that I am struggling to describe is almost identical to the shorthand sign for “bank” (see right).

So there you have it: as long as we avoid a government bond crisis, my best prognosis is for a “bank” shaped recovery-cum-stagnation, at least as depicted by shorthand. It is a fitting twist for a crisis that started with the shadow banks; perhaps the Gods of finance (and journalism) have a sense of humour after all.

Related links:
Presenting the hook-shaped global economic scenario - FT Alphaville
What shape the US economic recession and recovery? - FT Alphaville
The square-root-shaped recovery - FT Alphaville


Don the libertarian Democrat May 29 16:12
How about the '?' shaped recovery?

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