In 1977 Tom Watson walked up the 18th fairway at Turnberry, a stroke ahead of Jack Nicklaus in one of the most famous golf duels of all time. He hit a seven iron within two feet of the hole and made birdie to win the championship. Thirty two years later, Watson again enjoyed a one shot lead in the final round of the British Open at the same course. As most everyone knows by now, he hit his second shot a little too strong and bounced it over the green. He ended up with a bogey on the hole and subsequently lost the tournament. Two seemingly identical situations resulted in completely opposite outcomes.

In 1929, financial markets collapsed globally. In the ensuing years, a series of poor monetary policy and world trade decisions, along with numerous unsuccessful attempts to stimulate the U. S. economy, resulted in a global depression. Following the crash of 2008, many are predicting a similar result for the global economy in the coming years. But just as Tom Watson experienced a different outcome at the British Open last month, it is very possible that the results for the economy will be much different this time around.

One of the most important differences between now and 1929 is the strong economic activity coming from the world’s developing economies. In the 1930’s, places like India and China were poor, rural economies with economic and political systems which made substantial growth almost impossible. India was still under colonial rule while China and Brazil were both in the midst of severe political turmoil. When the slowdown came in the developed world, these economies succumbed as well. Today these economies, while still poor and rural, are committed to market economies and are growing very rapidly even as the developed world slows. Statistics from the International Monetary Fund show that since 2005, China has accounted for over 70% of the global increase in oil and coal production. The Chinese economy is predicted to grow by over 7% this year. While some may question the accuracy of figures coming from the Chinese government, it is clear that their economy is doing better than much of the world.

Another difference from the experience of the 1930’s has been the policy response, particularly in terms of monetary policy. It is generally agreed upon that following the stock market crash of 1929, the Fed made a policy error by tightening after the crash, which made the situation worse. Contrast this to the current situation where central banks globally have loosened monetary policy in almost every way imaginable. There is no guarantee, of course, that this will be successful, but the outcome is likely to be quite different from the 1930s. China, for example, has gone on a stimulus and monetary binge. According to Grant’s Interest Rate Observer, M-2 money supply is up 25.7% from a year earlier. Their local stock market has risen over 60% and bank lending has doubled. While this certainly creates some long term concerns, for now the situation appears to be positive.

In the U.S., a healthy re-pricing of risk seems to be in place. A recent conversation with a senior banker reveals that most credits are being substantially re-priced as they come due, with a return to a “prime plus” pricing model rather than the “prime minus” one which didn’t work out so well. With less capital available and more rational pricing, our view is that bank lending and credit investing generally should be profitable for some time to come. As we have said before, we favor the master limited partnership sector, where investment grade companies can still be purchased with high single digit yields and reasonable expectations of growth.

None of the above is meant to present a sanguine view of the current economy or its prospects. Policy makers face many challenges and the outcome of their decisions is uncertain precisely because they have never been tried before.

That said, the short term prospects for global growth are better than after the previous great crash, and the downward spiral which seemed likely just a few months ago seems to have been postponed and possibly averted.

William R. Andersen, CFA is the Portfolio Manager of the Wanger Income and Growth Fund