Crossroads

We think the world economy is not in bad shape, but also seems like a plane trying to land! Soft-landing or hard-landing?

Some investors are viewing a recovery:

• BlackRock Inc., Fisher Investments Inc. and Schroders Plc, which manage about $1.4 trillion, say stocks are inexpensive relative to bonds.
• Profit of companies in the Standard & Poor's 500 Index, the benchmark for American equity, is growing faster than shares, and represents a yield of 6.53 percent compared with 4.65 percent for 10-year U.S. Treasury notes.
• The gap -- the widest since 1986, according to data compiled by Bloomberg -- is encouraging investors because earnings forecasts indicate the U.S. will keep growing, while bond yields show confidence that inflation will stay in check.

But:

• The U.S. economy is slowing. Mortgage defaults are rising.
• As many as 2.4 million Americans may lose their homes because of the collapse of subprime lenders and foreclosures.
• Economists at Morgan Stanley, Nomura Holdings Inc. and HSBC Holdings Plc reduced their first-quarter U.S. economic growth forecasts last week after a report on durable goods orders raised concern a decline in business spending was deepening. Morgan Stanley cut its estimate to 1.6 percent from 2 percent.

Investors does not like uncertainty. We do not like clouds on the horizon!