If things seem too good to be true in the global economy, they probably are.
That’s according to some of the investors, Nobel laureates and academics attending the World Economic Forum’s annual meeting in Davos, Switzerland, which kicks off on Monday.
The fastest global growth since the start of the decade and strong forecasts for corporate earnings appear to be creating near perfect conditions for many investors, with stock buyers’ optimism hitting an eight-year high. Equities worldwide are already up about $3.4 trillion in 2018, with gains continuing even as major gauges flash overbought signals. Bitcoin is on a rollercoaster.
“Historically the stock market tends to affect the mood in Davos,’’ said BlackRock Inc. Vice Chairman Philipp Hildebrand, who will be among the 3,000 visitors to the Alpine ski resort. “So if things stay as they are, I expect the mood will be good.’’
The question is, can things stay as they are? Not all of those in Davos are sure they can.
“We are complacent at this moment,” said Robert Shiller, the Nobel laureate from Yale University whose research covers the rise and fall of asset prices. He goes as far as to say there are potential parallels between today and 1929, when a plunge in stocks helped trigger the Great Depression.
Any correction would be “probably not as bad as 1929, but it could be disruptive,” Shiller said in an interview.
More upbeat is Harvard University professor Kenneth Rogoff, who argues the “long shadow of the financial crisis” is finally fading, so “growth will continue to outperform.”
The International Monetary Fund on Monday used Davos as a stage to update its economic outlook. It raised its forecast for expansion this year and next to 3.9 percent, but Managing Director Christine Lagarde also warned against complacency.
While the meeting’s forecasting track record is patchy, delegates occasionally get the big calls right. Back in 2007, global growth seemed solid and stocks were soaring, yet former U.S. Treasury Secretary Lawrence Summers said that “it’s worth remembering that markets were very upbeat in the early summer of 1914.” Nouriel Roubini of New York University predicted a “hard landing.”