When Depressionary Economies Outperform Expansionary Economies…

I was struck by two posts I read yesterday.  The first described the extent of the depression occurring in Greece (via Macromon):

“The Greek recession has been the most severe in the recent history of crisis and compares only to the U.S. Great Depression.  Reasons include: the fear of the Euro exit; the credit crunch;  aggressive and horizontal austerity;  substantial reform delays;  political risks; the pre-crisis structure of the economy; and the strong Euro. “

The second post really jumped out though.  Greece’s stock market is obliterating China’s this year (via Also Sprach):

“Say whatever you like about Greece, at least their stock market is performing better than…China’s.

The chart below shows the year-to-date return of Greece’s Athex Composite and China’s Shanghai Composite. You are welcome to draw your own conclusions as to why the stock market of an economy which is supposedly “growing really fast” is performing even worse than the stock market of an economy which is supposed to be in a multi-year depression.”

(Chart via Orcam Investment Research)

Just more evidence that the stock market does not necessarily always represent the economy….


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:


  1. Jay Ritter did a study which showed that there is actually a small negative correlation between GDP growth and the stockmarket.

    As Keynes said….its all about expectations (the future).

  2. And if Greece survives going forward then we can praise Keynes,….but if Greece collapses going forward then we can finally set back and talk about the complete and utter failure of Keynesian economic ideology. This chart does look too bullish for Greece going forward into the future by the way. Shows some ugly topping due to an out of balance liquidity expansion that is doing nothing more than masking true economic realities. And IMHO that is about the ONLY thing Keynesian economics is good for.

  3. Depends on the time frame doesn’t it? Shiller documents how economies that have a bad 5 years usually have a good 5 years after that and vice versa…mean reversion……..

    My point was it is about expectations. People expect the worst (yes by looking at recent charts, recent economic figures and other recent data) and conclude that the bad will continue to be bad and the good will continue to be good.

    Keynes understood that when there were positive expectation (mainly regardless of data because people then look for positives to suit their changed opinion) things change for the positive! The return of animal spirits.

    Other than that Keynes made a bucketload in the marketplace – by being the original contrarian and understanding behavioral aspects of people.

    Australian economic growth 2009 – about 3%.

    Stockmarket – up 45%.

    It happens to coincide nicely with the Australian governments announcing that they were going to backstop the banks, guarantee bank deposits up to $100,000 and send all households money to spend.

    Result of that Keynesian pump prime? An economy that outperformed any other country that adopted austerity measures.

  4. as always it´s a game of expectations.

    China was supposed to rebound this year. which it did not. in fact many indicators + corporate reports showed recessionary readings (forget about official GDP growth figures).

    and Greece was supposed to be bankrupt at this time of the year. which it is (thanks to German fear) not. YET.

  5. “And if Greece survives going forward then we can praise Keynes,….but if Greece collapses going forward then we can finally set back and talk about the complete and utter failure of Keynesian economic ideology. ”

    Huh? Greece is attempting to cut spending in the face of flagging aggregate demand, and they are not sovereign in their currency. If anything, they are testing the remedies prescribed by mainstream economic dogma.

  6. Australia will also fail in the long run. If anyone want to know why Keynesian economics will fail in the long run the anwser is simply this. Its current utilization is totally misguided. Government spending is taking from the young working class and giving to the older non-working class. Every country is following this same model. What this will do in the long haul is turn the the young workers of today into a hopeless generation. We are slowly but surely turning today’s working generations into a hopeless mindset. Over the next several decades this will sadly errode both the economic and moral attitudes of working society. Productivity will turn from moral productivty into immoral productivity. It won’t be about what a person can do innovativately, production will be geared towards the mindset of wealth gain via dishonestly. This is what we are embedding into today’s young working class and anyone who doesn’t see this occuring will be blindsided by this realty.


  7. “Other than that Keynes made a bucketload in the marketplace – by being the original contrarian and understanding behavioral aspects of people” – Really? From Wikipedia – Keynes assets were nearly wiped out following the Stock Market Crash of 1929, which he failed to foresee. So much for the contrarian eh?

  8. I am amused that some people still didn’t understood what drives the stock markets even after years and years on experience as a fund manager or other jobs related to stock market.
    Saying the stock market doesn’t necessarily always represent the economy is just non sense.
    The conditions in Greece improved as China conditions deteriorated this year and stock market reflects just that.

  9. National Geographic sponsored a study of five areas of high – and healthy – longevity (including Seventh Day Adventists in Loma Linda).

    Common factors: social connection/community, spiritual meaning/purpose, routine physical activity, healthy diet. Also unhurried pace/plenty of time (including for naps – score one for CR).

    Near antithesis to modern mainstream lifestyle: frenetic pursuit of wealth and acquisition of ‘stuff’, diet, general excess.

    Similar results from a study of ‘happiness’ in UK: highest in remote western and northern islands.

  10. Sorry, intended this comment for “What if Money Didn’t Matter” post.

  11. Nice cherry pick. Try over his whole investment career. Other than your good self, I think most of us are fallible..

  12. ZZZZZ. You were the one who said he made money from being a contrarian not I. And obvioulsy he wasn’t that great of a contrarian in reality. Obviously just another lame attempt to glorify the man through myth. The fact is that ANYONE who invested in the market long term would have made money in equal porportion to Keynes WITHOUT having to be some “put him on a pedastal” genius. Also just curious what was Keynes feel about eugenics during his time. I know Margaret Sanger wrote papers on the topic for Adolf Hitler. Was this another of Keynes’ brillant social insights? LOL.

  13. I talking economics, but you seem to have veered off into social insights now. And my, how quickly we descend into moral superiority. I wait for your insightful comments on Keynes sexuality…..

    Keynes is acknowledged as a great investor. Records prove it. Sorry but is a fact so hard to accept. The question is rhetorical by the way.

  14. Greece is doing the EACT opposite of what Keynes and Keynesian economics suggest. In fact Greece, Spain Europe and the UK all prove Keynesian economics right

  15. So according to you Australia is doomed because ti is doing good now and hasn’t had a recession in over 2 decades. Odd logic you have

  16. That’s because you don’t know where to look. I said improve not grow for Greece and I said deteriorate in case of China not decrease.

  17. So now you’re saying economics and social morals are separate? That’s funny because Keynes DID NOT see them as seperate as you are claiming. In fact most economist don’t see them as separate (ie: moral hazzard) Whats interesting is that Keynes’ economic observations find contradiction in his embracing of eugenics, maybe thats why you suddenly wanted to separate the two. His economic views criticize favoritism while eugenics embraces favortism. Maybe Keynes is a great contrarian afterall or perhaps just a great contradiction.

  18. Shanghai stock market is not a regular stock market that most people think. For example, the company SINOPEC Shangai P listed in U.S(SHI). HongKong(0338.HK) and China(600688.SS), exactly the same stock, same rights, the stock price in A share is about double the price of HongKong and U.S.

    If you don’t understand the internal mechanism that keeps this difference ongoing, you can’t draw the right conclusion on the A share market. You also cannot draw the right conclusion about China’s housing market.

    China is like a river with multiple blocks of dam built in. If you want to use the physics of a free flow river to analyze how china works, you’ll always be wrong.

  19. J Duk – how about share what economic theory does work? And while you’re at it please share Keynes work on monetary unions without fiscal unions.

    The fact is that if you’re given a manual on how to operate a complex piece of machinery, and you apply it to some other machine – good luck with not killing yourself.

  20. You have a pretty warped view of Keynesian economics. The whole point is to reduce unemployment during depressions by stimulating the economy. Since the unemployed by and large aren’t doing anything productive anyway (especially when their unemployment is long-term, as is the case currently), this should be good both for them and for the economy as a whole. In the case of youth unemployment, it is especially important that we get jobless youths to work, so they can gain skills and their potential won’t be eroded by years of idleness.

    By contrast, the anti-Keynesians are often more concerned with perceived long-term effects (which, if present at all, will not benefit the young unemployed who will have fallen far behind in the job market by then), and (in some cases) with the adverse effects aggressive monetary policy will have on the older generations’ precious savings.

    I don’t know about the Australian economy, but I don’t believe it’s in any kind of deep recession like Europe and to a lesser extent the U.S., so Keynesian economics doesn’t really apply there.

  21. That logic does not work on goldbugs. As long as a system has fiat money and/or frac reserve banking, goldbugs will call it “Keynesian” and “doomed to fail”, regardless of actual economic policy.