Monday , 17 June 2024

Why Economy May See Another Flight to Safety in 2011

The Economy is Muddling Along – But For How Long?

While growth of the global economy is sluggish and the outlook for meaningful improvements looks bleak, in a world with few options, muddling along doesn’t look so bad – and the U.S. is doing just that, due in large part to the aggressive stimulus policies. The question is, however, whether or not it will continue. Words: 761

So says Bryan Rich ( in an article* which Lorimer Wilson, editor of, has reformatted and edited […] below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Rich goes on to say:

There has been a lot of focus on the sharp rise in U.S. interest rates during recent weeks and the media’s explanation of this activity has included two opposing viewpoints that portend two diverging outlooks for the U.S. economy:

The argument for a better outlook for the economy is that:

The improving U.S. economic data, combined with the stimulative monetary and fiscal stance, will lead to better U.S. growth in the economy than what has been anticipated and, as such, rates are rising in view of a strong 2011.

The argument for a gloomy outlook for the economy is that:

Given the aggressive monetary and fiscal stance in the U.S., the bond markets here are beginning to take the punishment which will ultimately drive rates higher and higher, just like in Europe’s weak countries.

Why neither of the above outlooks for the economy are valid…

Take a look at this chart of 10-year government bond rates that include the U.S., euro zone, Japan and the U.K. You can clearly see this is not only a move in U.S. government interest rates, it’s a global rate surge.

The fact is, big investors have been riding the government bond markets’ returns for the better part of the year and the recent aggressive rise in rates has all of the trappings for when these same investors book their profits into the year-end, pushing bond prices down and yields up.

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In a global economic environment defined by deleveraging and depressed global demand for the foreseeable future, rates are in a historically low range. I believe they’ll likely continue to oscillate in that range until the outlook for a sustainable recovery in the economy arrives but don’t expect that to come anytime soon. Already Bill Gross, the world’s biggest bond fund manager, is said to be accumulating bonds at the current levels and looking for another retreat in rates… so runaway interest rates probably won’t be the story for 2011.

In 2011 you’ll likely see more crises and more global risk aversion in

a) Europe – Specifically Ireland, Greece and Spain

The evidence is growing in Europe that this current act of government rescue isn’t working. Moody has cut Ireland’s credit rating five notches and put Greece and Spain on review for a downgrade…. [As such,] the euro crisis is nearing a tipping point, which if passed, could send global financial markets into chaos again.

b) China

China is facing a choice of slower, recession-like, growth or troublesome inflation. Given the public unrest that could result from either, the Chinese government is dragging its feet – and that may result in an even harder landing for the Chinese economy plus a big disappointment for global investors who were counting on China to lead global growth.


Considering all the talk about sovereign debt defaults and emerging market bubbles, I expect global investors to hold their fingers on the exit buttons for investments in risky assets around the world so – just like we saw in 2008 – 

Don’t be surprised if the global economy has a flight to safety in 2011

* ( Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil.)

Editor’s Note:

  • The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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