Perhaps not. Some arguments against the current gloom..

1) Inflation is rapidly falling (and turning into deflation, falling prices). Deflation would be bad (it increases the real value of outstanding debt, pushing more households and companies into problems), but low inflation is increasing real wages. The fall in oil prices saves consumers almost half a trillion, almost as large as the stimulus package..

2) Long-term interest rates are falling. These are much more important for the real economy than the more publicized short-term rates (which the Fed has more control over). We will get a lot of mortgage refinancing at cheaper rates. This will leave money in pockets of households and, probably even more important, might finally stabalize the housing market.

3) There will be a pretty large stimulus package, that much is clear. This will add quite a lot to demand, although we’re not at all sure that the tax cuts are very helpful (these might be saved, rather than spend). Give the money to the states (many of them are in dire need to maintain basic facilities) and/or those in need (they will spend it), like people with mortgage problems and the unemployed. Invest the rest in infrastructure and clean energy, these kind of investments had large multiplier effects in the past.

There is still a lot of downward momentum, and banks are still largely sitting on their money, but we think that it’s possible the economy is going to stabilize sooner than most expect. Yes, that’s not a very firm claim, but then again, we don’t have a cristal ball. We were right in April/May, when we consequently argued that things were much worse than the stockmarket seemed to think.

We think we will have a retest of the lows, but we’re fairly optimistic about not getting new lows. What’s the alternative? Certainly not bonds..