ONLY PART OF THE PICTURE

The Economist is rightly worried again about the impact of the present bear market, but the background thinking needs to get a bit clearer why the problem in Japan has gone as it has.

Stockmarkets around the world are unusually jumpy, with dramatic falls in share prices followed by sudden recoveries. But the underlying trend still seems to be down, raising fears that the global economic recovery could yet be undermined.THESE are not times for nervous investors. The recent sharp fluctuations in the world’s stockmarkets have brought the doom-mongers out in force. They point to the relentless downward slide in share values since their peak in 2000 in America, earlier in London and more than a decade ago in Japan. The collapse in share prices has sent many investors scurrying for cover in safer assets like bank deposits or bricks and mortar; and workers due to retire have begun to worry about the safety of their pension funds. Stockmarket volatility has been matched by swings in currency values—if there’s panic around, foreign-exchange dealers don’t like to be left out.

The market hysteria, coupled with a relentless air of gloom among many in the financial and corporate sectors, is enough to make even the most balanced economist pause for thought. Long-time market observers know things are rarely as bad as they seem—but could the current bear market be one of the exceptions?
So far, the bear market has not had too dramatic an impact on America’s admittedly modest recovery this year. The data is mixed, and there are still worries about business investment levels—which Mr Greenspan regards as key to a sustained upturn—and about wobbly consumer confidence. But unemployment has not risen as far as some had forecast—not yet, at any rate—and labour market figures released on July 3rd showed a further fall in initial unemployment claims from those who have recently lost their jobs.

For those determined to look on the black side, though, the spectre of Japan looms large. In late 1989, the Nikkei share index peaked at almost 40,000: the ensuing collapse was swift—within three years the index had fallen to less than half that, and it hovered around that level for the best part of a decade before plunging again in the middle of last year. Most worrying of all, for those now watching the decline of American shares, the Japanese economy has been in the doldrums ever since its share bubble burst.
Source: The Economist
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