“Intermediate” Gratification

July 21, 2011 Categories: Economic Insights
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At the risk of stating the obvious, the restoration of investor confidence and the recovery of the global economy are inseparable. Everyone knows that. I tend to think that the appearance – and reality – of powerlessness and uncertainty about the basic effectiveness of our institutions are among the most scarring after-effects of the global financial crisis.

That’s institutions ranging from financial institutions all the way up to governments. Whether it’s the budget battles inside our own Congress, the efficacy of quantitative easing, or the divisions within Europe on how and whether to keep economic union intact, there is the pervasive doubt that things aren’t working the way they used to. We all love instant gratification, but sometimes, for something really great, you’ve just gotta wait.

Roll of thunder, hear my cry

This past quarter, the institutional response to usurpers, over-reachers and questionable characters was unmistakable: you can run, but you cannot hide forever. Take for example Serbian war criminal Ratko Mladic, detained in the Hague in June; Raj Rajaratnam (insider trading); and sundry North African and Middle Eastern autocrats. The tables are turning – it’s been open season on tyrants of any stripe. Governments around the globe are desperate to make the point that no one is above the law.

Investor confidence can’t hide forever, either

Collapsing Euro Zone, double-dip recession, death of democracy. At Russell, we do not buy it. But we sure can see why many advisors and clients are worried – and tired of being worried. Although we still have a ways to go, at Russell, we tend to think the hard part is behind us, not ahead. Our most recent Financial Professional Outlook suggests that advisors share that view – 76% of advisors polled are optimistic about the future of the capital markets. Their clients, on the other hand, are of a different mind. In our survey, only 29% of advisors believe their clients share the positive outlook. This relative gap in optimism has been persistent for the last three quarters. Time will tell…

Courage, responsibility, vision

Corporate America will again find the courage to open its coffers. And as you might know, they are pretty full – having generated over $1.6 trillion in profits in the 4th quarter of last year alone.1 Crises do occur, but they also produce opportunities for leadership to spring from them. And while having a strong understanding of the present does not equate to an ability to predict the future, I offer this observation: the spell a crisis casts makes it impossible to see its potential to transform, to incubate new ideas, new leaders. And yet, new ideas and leaders emerge. It is the human condition, even if in the thick of it, we momentarily forget. As our institutions regain their balance, partly by the evidence of showing the bad guys to the door, it sets the stage for renewed confidence and renewed investing.

Tim Noonan is managing director of capital markets insights for Russell Investments. View Tim’s bio »

Editors’ note, February 2014: A previous version of this blog post offered a link to a Financial Professional Outlook post that has since expired.

1 New York Times, “America Awaken” by Roger Cohen, June 27, 2011.

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