MacroScope

Allocation to herd: 100 percent

They’re bleating and buying. And you had better not let them run you over.

The latest Reuters surveys of global asset managers confirm what we’ve all been watching over the past month: a mad rush out of safe havens and into stock markets. There seems to be little else to report out of financial markets.

That stampede, particularly into U.S. shares by U.S. money managers, clocked the single biggest rise in equity allocations since at least 2007, before the financial crisis began, according to the latest Reuters poll data. The rush into global stocks by investment firms all over the world was the biggest in at least three years.

Other reports are saying the same thing.

What is more puzzling, other than a desperate need for change, is why.

It’s clear that most people any way connected to debates in financial markets are tired of all the doom and gloom and don’t mind taking a more positive view. But is that enough?

The euro zone crisis has not just ebbed. It seems to have gone practically dormant. (Never mind that more than half of young Spaniards haven’t got a job. Or that we ought to be wary of calling an end to things that once seemed like they would never stop.)

The U.S. property market is showing some signs of life, with widespread price rises. (Never mind that the economy shrank in the final months of 2012 for the first time since it escaped from recession in 2009. Or that political gridlock is clearly damaging business and job prospects).

Small credit for big depression

It took some time, and a lot of downward corrections to IMF GDP forecasts, before the current global economic downturn won the title of ‘worst since the Great Depression’.

Why settle for second worst though?

This one is in at least three ways just as bad if not even worse than 1929-30, economists Barry Eichengreen (University of California, Berkeley) and Kevin O’Rourke (Trinity College,
Dublin) argue

Look at global industrial output, world stock markets, and global trade volumes. Map the nine months after April 2008 against the period following June 1929 and the story you see is the following:

Meet Macroscope …

The financial system is in the grips of its most violent
upheaval since the 1930s. A staggering amount of wealth has been
destroyed this year — $11 trillion wiped out from world stock
markets in the past nine months. The damage already is spilling
into the real economy, and fears are spreading among investors
of a deep and damaging downturn.

Macroscope is a new blog where Reuters journalists from
around the world look behind the headlines, the speeches and the
economic reports to bring you a fresh look at the factors
driving the world economy, and the people making the decisions that affect
your household budget.

It will look at the policymakers who are ripping up the rule books
in a desperate search for ways to get cash pumping through the seized-up money markets,
stabilise banks, revive stock markets and prevent the credit
crisis from turning an economic downturn in the United States
and Europe into a deeply damaging global recession.