Baccardax: Optimism Down, Not Out

Hopefully readers will forgive the indulgence into tennis analogy, but I've just finished watching an absorbing quarter-final at the Australian Open between the Serbian-born comeback kid, Jelena Dokic, and the world's third-best female, Dinara Safina of Russia. And the parallels are clear.

Dokic, once the world's most promising young player and adopted Australian, is only now just emerging from a years-long depression and the restrictive reigns of her father (and former coach); her performance today was optimism personified.

Her opponent Safina, however, was simply too strong; the very metaphor of momentum and current form.

You might not bet against Safina today – but in 12 month's time, maybe it's a different story?


That's this week's financial markets in a nut-shell: current form favors the pessimists, but the bookies are starting to see some real action of the optimists' side of the ledger.

Let's scan the globe: Japan got its political act together, overcame partisan squabbling and passed a measure that would let its state-owned Development Bank buy shares in ailing Japanese companies. The central bank also dropped strong hints at quantitative easing in its most recent minutes. Stocks surged the most in three months as a result.

In Russia, multiple reports suggest officials are ready to leave their current obsession with the rouble to one side and sock $27 billion into the nation's sclerotic banking system.

In Europe, heretofore lugubrious German business women and men defied the economists and registered their most positive outlook on Europe's second-largest economy in at least 8 months. Engineering giant Siemens delivered an as-expected profit drop, but clung to full-year expectations with a decent order book and strong free-cash flow.

And in the United States, Senate lawmakers overcame their squeamishness about the tax affairs of Tim Geithner and voted the former New York Fed Boss as the man to next put his signature to newly-printed dollar bills (i.e. Treasury Secretary).

So a solid set for Optimism, then.

Of course, if you believe the skeptics (I don't, for what it's worth) Geithner's going to have a cramped hand by the end of his tenure: the Federal Reserve begins its two-day Open Markets Committee meeting today with most of the world waiting for news of its own "credit easing" program that many (if not most) commentators will prefer to call "printing money".

And that brings us back to Pessimism. She's still set up and holding serve and up a break: more Americans are filing for unemployment benefit than at any time in the last 27 years. Twenty-two of the 30 Dow components have announced swingeing job cuts in the past six months. House prices in the US fell 15.3 percent last year.

In Europe, economists still project a sharp – and protracted – contraction in the German economy this year as the after-effects from the European Central Bank's obstinate stance on headline "inflation" become ever clearer. The UK remains deeply imbedded in a debt crunch that's keeping inter-bank lending rates stubbornly high (while those in euros and dollars fall) and faith in banks stubbornly low (the recent renaissance of Barclays shares excepted).

In Russia, despite the protestations of the sell-side, investors have one eye on oil prices and the other on foreign currency reserves. Both are moving in the wrong direction.

In Japan, a further extension of the nation's balance sheet will require ever more funding in the face of a global recession: Japan needs nominal GDP to expand 3 percent a year just to service *current* debt. It hasn't done that in a decade.

In the final set of today's match, Safina held her nerve – and her serve – in the final game of a three-set thriller to advance. But the crowd was firmly behind local-girl Dokic and gave her a rousing farewell cheer.

She lost today, but it's a long season, and anything can happen.

The same is true in our world.