2008 has indeed been an extraordinary year, with the most severe financial crisis since the Depression in the 1930s. The concept of a pure investment bank has almost ceased to exist in the US, and we have seen events no one had dared imagine for example the bankruptcy of an investment bank Lehman Brothers (founded in 1847). The repercussions of the Lehman default led to a near collapse of financial markets. The paralysis of the financial system has been a major blow to the world economy and led to the steepest economic downturn since WWII.
The rise in commodity prices during the first half of the year led to widespread inflation fears as prices reached 20-year highs around the world. Bond yields soared and we saw several central banks hiking rates to fight inflation (not least ECB and the Riksbank). The rise in inflation contributed to the collapse in consump-tion growth globally as it eroded purchasing power and as such plays a major role in the downturn we are wit-nessing now. In the second half of 2009 commodity prices u-turned and inflation fears turned into deflation fears within a few months. The substantial rise in bond yields reversed into significant declines. Government bond yields have now reached historical lows in both US and Euroland at the same time credit bonds have seen the highest yield levels in decades.
So this is where we stand now at the brink of a new year with the global economy in recession and deflation fears widespread. 2009 will indeed be a difficult year also. But we are cautiously optimistic that equity and credit markets will recover and that the combination of massive policy stimulus and a marked decline in com-modity prices will take us slowly away from the abyss starting in the US during spring 2009 and followed by Asia in H2. Unfortunately Euroland and Denmark will likely have more adjustments to deal with before recovering in 2010.
