Roach: “Liquidity is seeking return”
Here’s a nice clip from Stephen Roach from last week asking “where’s the demand?”
His thesis is pretty simple: we have an inventory-induced upturn that might actually show positive GDP growth in the U.S. for Q3, what I have termed the mother of all inventory corrections. But, that’s it. Underneath this is no discernible pickup in demand anywhere globally. Add in a still massive number of writedowns to be taken by banks globally (at least $2 trillion by Roach’s estimate) and you can see that there are a lot of economic headwinds here.
My favorite part of this video is where the presenter says: “Stephen, you sound pretty bearish. Are you not a believer at all in that green sh**ts theory?”
The video runs 7:32 and covers a wide range of topics from inventories and consumer demand to China and systemic risk in finance.
In regards to markets, he makes the telling statement: “liquidity is seeking return,” suggesting that the market uptick since March is merely a liquidity-driven bear market rally. This is something I have been suggesting as well. See posts Is quantitative easing really inflationary? and Does Ben Bernanke blow bubbles too? for more. The thing is these rallies can go higher and can last longer than most market participants would expect.