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Shape shifting

While out the other evening with some of the good, good people of Lazard Asset Management, a fund manager told me that he was no long feeling as optimistic about the outlook for the global economy as he had been.

This led me to two thoughts in quick succession – first, “Oh good, so it’s not just me then” and, second, “Hang on, why am I feeling more bearish just as lots of people seem to be spotting green shoots like they are on a day-trip to Kew Gardens? Can I really be that perverse?”

Well, yes, obviously I can but, on further reflection, I do not think that is what’s happening here. The explanation which, of course, fits in very well with my basic world view, is that I have not changed at all – everybody else has.

Regular visitors to this space may well have noticed in recent months a certain perkiness on my part that would, were you to stand everybody in the world who has an opinion on this sort of thing in a line, see me slightly closer to the end boasting the most rose-tinted optimist. Now, without moving my position, I am apparently significantly closer to those people bulk-buying scotch and shotgun cartridges and picking out their cave in Wales.

This makes me uneasy. Are there really people out there who think that was it? “Phew,” they’re saying, “It was touch and go for a while but we have made it through to the other side and I really think we have learned our lesson this time.”

Hmmm. It is like someone kidding themselves that it is fine to go back on the dough-nuts after a whole gruelling week of dieting. Or when, in Blackadder Goes Forth, Captain Darling says: “Thank God. We lived through it. The Great War, 1914 to 1917.”

Yes, the Bank of England is doing its best to pour cold water on hopes of a swift recovery but I get the feeling that people are treating its pronouncements much as I do the BBC weather forecast. You take a look for old times’ sake and it is pleasantly surprising if they get it right but, frankly, before I leave the house without my mittens, I am going to look for confirmation somewhere else.

Maybe people are misunder-standing all this talk about various letter-shaped recoveries, which is making any discussion of the subject look like a bad hand at Scrabble. So far, I have read about V-shapes, U-shapes, W-shapes and L-shapes which, incidentally, seems to me to be too horizontal to count as any-thing more than stagnation.

My charming research assistant Miss Google also found a reference to an S-shape in the context of a recovery but it turned out that this had something to do with elastic recovery in polypropylene film filaments, which came as a bit of a relief.

Then it transpired we were not stopping at letters. Some people like to talk about a saucer-shaped recovery, Merrill Lynch has come up with the square root-shaped recovery – a sharp initial recovery followed by a levelling off halfway down the road – and the Budget proposed a recovery that was not so much shaped as invented.

Still, for now, this column’s Alphabet Soup Award should probably go to one of the commentators I mentioned last week, Jeremy Grantham, investment supremo at Boston-based investment manager GMO. He says: “We are used to the idea of a preferred V recovery and the dreaded L-shaped recovery that we associate with Japan. We are also familiar with a U-shaped recovery and even a double-dip like 1980 and 1982, the W recovery.

“Well, what I am proposing could be known as a VL recovery (or very long), in which the stimulus causes a fairly quick but superficial recovery followed by a second decline followed in turn by a long, drawn-out period of sub-normal growth as the basic underlying economic and financial problems are corrected.”

Apologies if I am raining on the parade of anyone currently comforted by the theory of Polish economist Victor Zarnowitz, who argued that deep recessions are almost always followed by steep recoveries. However, Mr Grantham’s theory at least has the advantage of allowing both the bulls and the bears to be right although admittedly for somewhat different lengths of time.

Julian Marr is editorial director of


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