I can't bear to watch as the market finds its feet again

Anyone who has cheered on a 3-year-old in running races at the company picnic or a kindergarten sports day will have an idea of what it is like for brokers and investors watching a bear market rally.

"Come on, keep running ... you can do it ... no ... don't stop ... no, the finish line is that way ... no, that way ... no ... oh ... oh well."

It can be a heartbreaking experience although smart parents don't dwell on these things. They recognise that ups and downs are part of childhood and keep faith that kids get the hang of things even if it takes another year.

So too with bear rallies. There will be false starts, falls and erratic movement in both directions.

This week Wall St had its biggest three-day rise since November. This column is published before Friday's close in the US so can't predict if Wall St finishes the week in an exuberant mood. But you can bet it won't last long.

Some call it a sucker's rally. That seems harsh - a false start is better than no start. And there is always that hope that the market may have hit bottom, that the next fall when it comes won't be quite so far.

But investors need to be prepared for the fact that a real and meaningful recovery is probably some way off.

Historical evidence suggests that equity markets take years to recover from the shocks like that of the past six months.

In an analysis of the damage done to economies that have been hit by a banking crisis since World War II, US academics Carmen Reinhart and Kenneth Rogoff found equity markets averaged a 55 per cent decline over a downturn of three and a half years.

Playing the game of historical comparisons leads us to a pretty grim outlook for the near-term. But it is not a very fun game and not recommended for dinner parties - unless you have drunken optimists at your table who need sobering up.

Most economists this week concluded that Alan Bollard - who cut the OCR by 50 basis points to 3 per cent - is an optimist. They think his view that the downturn will hit bottom later this year is too jolly.

He argues that he'll mostly likely cut the OCR to 2.5 per cent but will have a low of 2 per cent up his sleeve if the economy keeps contracting into 2010. The bank economists reckon it's a dead cert he'll have to go to 2 per cent.

Bollard does believe that New Zealand is better placed to weather the storm than most countries. Confronted with the grim findings of Rogoff and Reinhart he would be quick to point out that we haven't actually had a banking crisis here. What we are experiencing is the fallout from the crisis in the US and Europe.

But as someone who has a deeper understanding of international economics than most, Bollard clearly finds suggestions that he is an optimist amusing.

On Thursday he faced journalists baiting him for being both too rosy and for being too grim.

One who took the former tack asked if he shared the optimism of an oddly upbeat John Key, who made some vague comments this week about "interesting signs" of recovery.

"Lamb prices are up, the exchange rate is competitive, Citibank has reported a profit," Key said. "It's not all doom and gloom."

Bollard - who retains a fine sense of humour no matter how grim the numbers are - deftly ducked the politically awkward question by deferring to mathematics.

"We are seeing a slowdown in the rate of bad news," he said, capping the comment with a long pause and wry smile.

- Liam Dann