(Too) Great Expectations

While there are many things to ‘worry’ about in today’s markets, there is one “great expectation” that it appears everyone is dreaming about…

As Bloomberg’s Mark Gilbert notes, there’s increasing chatter about the prospect of fiscal action from governments, which is shorthand for borrowing money to spend on infrastructure projects, thereby creating jobs, boosting growth and investing in the future. The U.S., the U.K., Japan and the euro zone are all being urged to ease up on austerity and open their pocketbooks.

The chatter, though, has become a roar — which raises the uncomfortable prospect that speculation about fiscal action will lead to disappointment. Here’s a chart showing how the hubbub has become louder and louder in recent weeks…


So now that we know what is ‘expcted’ to save the world, Gilbert concludes by noting that the question posed by many investors is what might break the spell that’s seen the Standard & Poor’s 500 Index gain 7%this year and the combined value of stock indexes around the world increase by 10 percent in the past year. The scope for disappointments is wide:

if the next U.S. president fails to make good on election pledges to repair infrastructure,


if Japan fails yet again to make meaningful investments, if Germany continues to block fiscal action in the euro zone,


if the U.K. government doesn’t follow through on its promise to “reset” economic policy.

Those “great expectations” in the chart above could be dashed very hard indeed.

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