Does The World Bank Have It Right

We have been bearish on the economy for awhile. As the market rallied strongly from the March 9th low, many market pundits have been spotting "green shoots" everywhere. Sure signs of life have arisen and the financial meltdown seemed to have abated. However, a little optimism and higher stock prices led to increased consumer confidence but we have been concerned that the economy will not grow at all in 2009. Perhaps 2010 will bring better days but rising corporate defaults, increasing consumer credit defaults, and higher unemployment trends have left us a little perplexed at the forecasts for growth in the latter half of 2009.

Today the World Bank lowered its expectations for economic growth and it sees the United States GDP contracting 2.9% for all of 2009 and worse for most of the rest of the world. Perhaps others will start to see the reality ahead as the stock market took a dive today. Stocks bounced off the lows as the markets overshot on the downside but they certainly ran too fast and too high on the upside. The banks may be better capitalized but only time will tell as to whether they are truly capitalized with enough equity. The risk in the markets and the financial system are still high and a downdraft in stocks will only reflect the discounting of economic reality.