FT.com / In depth - Return of the old ways of thinking threatens recovery

FT.com / In depth - Return of the old ways of thinking threatens recovery

This article from Mohamed El-Erian, really nails it. Are we seriously adapting our models to the new reality? Or does everybody think that this is over and we can carry on as before?

All evidence suggests that current growth is mainly driven by stimulus packages, rather than real demand. This graph shows the evolution up until April of corporate earnings. It shows how earnings have declined much faster in this recession than in previous ones.

Worldwide, the biggest transformation needed has not yet occured and it doesn't seem to be ocurring any time soon: the swap from excesive leverage and excesive consumption in the US, to a higher consumption and lower saving in China. The news coming from China about their excess capacity being built there are not sending the signals that this is happening as of yet.

This is a multiyear transformation process and the market pricing in a short term recovery is unrealistic.