John Lonski is responsible for the analysis of global credit markets, with a special emphasis on the interaction between economic phenomena and the supply and demand of credit market funds. He recently spoke to Judith Schoolman about his outlook for the economy.

1. Where are markets going?

Higher. You can't help but note a 28% return from high yield bonds, above common equities. Unless there are unforeseen events, huge policy mistakes or some other crisis, markets are likely to rise 15% from today's levels by year-end. That's for common bonds and equities.

2. So, have we seen the bottom?

In all likelihood there's still a 25% probability that equity markets might form new bottoms. There's always a downside risk facing the economy-I'd say a 25% risk of selling to a new low.

3. What economic indicators do you think are the most relevant and how are those indicators doing?

I keep my eyes on consumer spending, which appears to be on the mend. If consumer spending is the rising trend, then business sales will follow. If businesses stop cutting staff and adding payrolls, then it all wraps around again to consumer spending. There are also initial jobless claims, which reflect payroll changes. Jobless numbers have trended lower since April, which is favorable, and maybe will mark the end to the recession. Job growth [could even] resume in early 2010. However, we're looking for 4.25 million layoffs in 2009, and the sense is that 80% of those will have been in the first half of the year. In the first half layoffs were some 580,000 a month. But there should be 135,000 a month in the second half. Those numbers are big but [the trends are] not unusual if you look at previous economic cycles. A recovery began in December 2001, but it wasn't until June 2003 that unemployment peaked. The 1990-1991 recession ended in March 1991, but unemployment didn't peak until June 1992. So even after an economic recovery begins, you'll continue to see job losses, but at a less severe rate.

4. Does the saying, "As goes GM, so goes America" still apply?

I don't think so. You have to realize that the auto industry is not what it used to be as far as the U.S. economy is concerned. Actually, GM's loss is the rest of the industry's gain. Detroit isn't even the center of the industry anymore, as manufacturing has moved to the Southeast because of foreign [company] transplants. Big American names are now foreign-owned. Hummer, for example, is now owned by a Chinese company. Chrysler is owned by Fiat. This may be a sign of things to come for the U.S. auto industry. But I think the U.S. economy overall will withstand the failures of GM and Chrysler.

5. World stock markets pretty much hit their low in March. So are we now seeing a rally, or a correction from an overshoot?

This is a rally. Look at industrial production outside of the U.S. There have been a series of monthly increases in emerging markets around the world. I'm thinking of [South] Korea and Taiwan, Brazil, and you can infer the same for China. And, equity market performance in emerging markets has been very strong for the year to date. There has been 40% year-to-date equity price gain growth in 10 emerging market countries. This tells you that the world economy is expected to do better. Also, industrial commodity prices are on the rise, such as precious metals and oils. So you can see that the world recession has eased considerably, and there will likely be a global economic recovery by the end of the summer for the U.S. While there's a decent outlook for the world, the U.S. has had subdued spending growth, which is lagging that of previous recoveries. Consumers will have to spend at a rate much more closely aligned with what we've seen in previous recoveries.