In the following I have tried to sum up in ten points my analysis of the economic and financial situation.

This week marks the first anniversary of the end of the most recent bear market. Between October 2007 and March 2009, the stock markets lost around 54% (using the MSCI World index in euro as a benchmark) before gaining 62% since then. (Mathematical calculations being what they are, an increase of 62% after a slump of 54% means that the markets are still well below their October 2007 level).

This time last year, I wrote that the New Year tradition of making forecasts for the year to come was an even more perilous exercise than usual. My reasons at the time were linked to the lack of visibility on the economic situation and the uncertainty on the banking landscape.

The inconsistencies that were predicted by many economists when the euro was introduced, but were masked by the favourable economic situation between 2000 and 2008, have now come to light with the problems in Greece.

In the following, I try to answer some of the main questions people have posted on the blog in the past few months.

Below, I offer some answers to five questions that have been frequently put to me.

You might be surprised at my reticence to believe in a sustainable improvement in the economic situation when every day the media seem to be presenting us with encouraging economic statistics. So here is a brief summary of my reasons.

There is no doubt that the recovery on the equity markets since March has been impressive. Since their lows of 9 March, the European and US markets have bounced back by around 45 %, while for some of the emerging markets, the figure was closer to 100 %.  And although the sharp recovery that started in March seemed to be gradually losing steam by May, the markets began soaring again in mid-July.

The first two quarters of 2009 couldn’t have been more different on the financial markets. While investors exhibited strong risk aversion in the first quarter, the second quarter saw the very same investors return to equities and high yield bonds.

Long-term government bonds have been badly hit by expectations of economic recovery and falling investor risk aversion. Since mid-March, long-term government bonds have slumped with the yield on the 10-year bond increasing by 150 basis points (1.5%) and 75 basis points (0.75%) respectively in the United States and in Germany.