The End Is Nigh!

After seven years as a global economy bear, Stephen Roach is now optimistic:

FT.com / World / International economy - Former bear turns bullish on global economy: By Jennifer Hughes in New York: The world economy may be able to unwind its current imbalances without serious disruption, Stephen Roach, Morgan Stanley’s famously bearish chief economist, predicted on Monday, in a remarkable revision to several years of gloomy prognosis. Mr Roach had long warned that the US current account deficit and Asian central banks’ ballooning currency reserves risked destabilising the global financial system.

But on Monday, in a note to clients, he said: “I must confess that I am now feeling better about the prognosis for the world economy for the first time in ages.” His comments came as the dollar hit a one-year low against the euro and seven-month low against the yen, as investors remained confident the US Federal Reserve was nearing the end of its interest-rate-tightening cycle. Mr Roach said the tipping point had been last month’s decision to mandate the International Monetary Fund to begin multilateral discussions with the aim of resolving the largest trade imbalances.... “I’ve been wringing my hands over the mounting global imbalances for longer than I care to remember,” said Mr Roach. “The world is finally taking its medicine - or at least considering the possibility of doing so. The risk is that this is so far only on paper, but it’s a critically important first step.”

Mr Roach also highlighted the orderly progression of currency adjustments. “The dollar is not collapsing, there’s not a run going on here.” said Mr Roach. “This is a gradual decline and while we’re talking year-lows, these levels are not sharp breaks from the levels we saw a month or two ago.” The dollar has fallen about 3 per cent against the euro since the IMF and G7 met.... Last year, the US current account deficit reached $900bn on an annualised basis and without some significant change in the current patterns, is expected to reach new records this year. At the same time, Asian central bank reserves are still growing, although at a slower pace. Both China and Japan hold more than $800bn each.

Could there be a stronger "sell" signal than this? :-)