Regular readers would not normally look to me as a source of optimism. Yet, in the midst of the current all-enveloping gloom about the world economic outlook, although not exactly optimistic, I find myself nothing like as pessimistic as the financial markets appear to be.

Their gloom has started to affect most commentators and could, I suppose, lead to a widespread fall in confidence in the real economy which could then produce, unnecessarily, the very thing that the markets are worried about.

So, are the markets right to be worried? Supposedly, they look into the future in a cold, calculating, rational way. Not for them the swings of emotion that affect human beings in the rest of their life. Well, that’s what the financial textbooks say.

Yet we know that markets can sometimes succumb to euphoria. Former Fed chairman, Alan Greenspan, once referred to their “irrational exuberance”.

They were irrationally exuberant about tech stocks during the internet boom and later they were irrationally exuberant about both the American property market and the ability of derivatives and various forms of financial engineering to magic risk out of the financial system.

But if the markets are capable of irrational exuberance then they should surely also be capable of irrational despair. I think that is what is happening at the moment. Every item of news seems to be interpreted bearishly.

David Fuller's view

Here is a PDF of Roger Bootle's article.

I find Roger Bootle’s article persuasive, even though he has given himself an escape route, albeit perhaps tongue in cheek, with his concluding sentence. 

What concerns me, however, are the top-heavy charts for stock market indices, the underperformance of global bank shares and the selling of equities and corporate bonds by the sovereign wealth funds of oil producers, from Norway to Saudi Arabia.  I certainly do not think this is a replay of 2008 but we may need to see somewhat higher commodity prices, not least for crude oil, before we can conclude that this cyclical bear market is over.