STAFF NEWS & ANALYSIS
Stocks Tumble on Bleak Outlook for World Economy
By Staff News & Analysis - June 23, 2009

Surprisingly bleak forecast for the world economy sent stocks tumbling to their lowest level this month. Major stock indexes dropped by more than 2 percent Monday, sending the Dow Jones industrial average down 201 points, after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction. Investors began buying up stocks in March on hopes that the economy was poised to begin recovering. The grim assessment from the World Bank runs counter to hopes that have been building for months that a gradual recovery was beginning. The dampened economic outlook also weighed on the prices of oil, metals, and other commodities. Those commodity price drops in turn sent energy and metal producers' shares falling. Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, said the downbeat economic prediction confirmed fears that have been building in the market for two weeks. "The forecast by the World Bank just dramatized that the market may have overstated what's coming for the economy," he said. – Pasadena Star

Dominant Social Theme: An adult forecast for adults?

Free-Market Analysis: The World Bank in our opinion is part and parcel of the monetary elite's kitbag. It was developed around the time of the United Nations, the International Monetary Fund and Bretton Woods, and has seen its share of corruption and endless, spiraling dysfunction. Like the IMF, it seems determined to remake itself and perhaps one of the ways it does so is by issuing fairly grim – and in our opinion realistic – assessments of the world economy. What were the figures exactly?

The Washington, D.C. multilateral lender said the world economy will shrink 2.9 percent in 2009 – worse than its previous forecast for a 1.7 percent contraction – as banks continue to get their balance sheets back into shape. The warning tapped into a growing mood in the markets that the improvement in the economic data has not been strong enough to justify the stock market rally since March. Last week, the world's major indexes saw broad losses, while oil prices slipped back from six-month highs above $70 a barrel. "The concern seems to be that we were all perhaps a little too soon in thinking that the worst of the economic slowdown was behind us, and for now at least, discretion may be the better part of valor – until there are more concrete signs of a sustainable recovery," said David Jones, chief market strategist at IG Index. (AOL.com)

A three percent drop in the world's growth rate – assuming that one can predict such a thing – is not the end of the world, but it should put an end (for at least a day or two) to the incessant articles about green shoots. When central banks pour endless amounts of paper money into economies, all they are doing is freezing into place the mal-investments that helped take down the economy and stock markets in the first place. This does tend to support dysfunctional enterprises, but in doing so, the investments retard the inevitable business realignment. This means that instead of a recovery, one merely gets a sustained recession – at best.

After Thoughts

Of course the media and those with a stake in the system as it is will continue to play up signs of "recovery." The World Bank forecast, realistic as it may be, will likely be forgotten in a week or two as other events surge to the fore. The larger market, after retreating, will surge again on some news or other, or simply additional stimulation, and more money will be committed. Then perhaps after a spate of more bad news, the broader markets will wane once more. On we will go in this fashion. Those who are putting larger monetary policies into effect continue with stop-gap measures in the hopes that the system will continue to be seen as sound. They will hope that people, confused by all the conflicting information, will never figure out the reality – which is that managed economies always fail and after blow-offs such are more likely to participate in an L-shaped recovery than a V-shaped one.

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