James Saft

Stephen Roach of Morgan Stanley, who pretty much called it at last year’s Davos, when consensus was for no recession in the “real” economy and decoupling of emerging markets, is gloomy again. Speaking with him this morning after he did an interview with Reuters on Davos Today, Roach said that there was a real threat of protectionism as politicians come under pressure from rising unemployment. The U.S. and China relationship will be key, he said.

On U.S. real estate – a continuing issue for banks and the economy:

“The interplay between the property and financial sectors has been ground zero of this crisis.

The problem was the banks played the property bubble just like consumers did and so we are all in this together.”

Not a big fan of equities, it seems:-

“Equities have pretty much discounted a dire outlook for 2009. The problem with equities as an asset class is that they are pretty much based on optimistic earning expectations for 2010 and 2011. We will challenge those expectations this year. I’d be pretty cautious before committing new funds to the equity market in this climate.

So what is Blackstone Group chairman Stephen Schwarzman’s prescription for solving the banking crisis?

It is, no doubt, going to be the most gloomy World Economic Forum in years ever. Fewer parties, lower profiles for the masters of the universe TARP.

OK, don’t get too excited but is it just possible that Davos is meeting at the bottom point for the global economy, which means, for those of you keeping score at home, that things might actually get better from here? It’s not much to go on, but some of this morning’s German IFO numbers were encouraging, particularly the forward looking expectations bit. Further, US home sales were higher than expected yesterday, though that is likely just the beginning of a foreclosure sale boom that will wither values and bank balance sheets. Credit markets are a bit less clogged too.

Weeellll, probably not really. A bottom isn’t a recovery after all and for one thing we’ve yet to get the inevitable multiplying effects fully from crashing demand in emerging markets. Still somewhere under that snow shoots must be forming, right?

So, back we go next week to Davos for the World Economic Forum 2009, titled this year “Shaping the post-crisis world.”

Except the crisis ain’t over yet and shaping the world while it is happening is proving to be about as easy as tying your shoes while riding a bicycle.

Let’s dial back briefly to those more innocent days in 2008 and remember what was being discussed at Davos then.