Spring Has Sprung.(Global Investor)

Byline: Barton Biggs; Biggs is managing partner at Traxis Partners hedge fund in New York.

The feeling that we have averted depression is a big reason equities in many places are in a sustained rally.

As Spring begins to come to the Northern hemisphere, green shoots are appearing not just in the shrubbery but in sickly economies. I'm not saying that there won't be some cold and rainy days in the months to come, but for the moment, it seems, winter is over. Obviously this is a big deal for real people and for beleaguered stock markets. The prospect of an economic ice age was what terrified investors, and the feeling now, that the world has averted depression, is a big reason equities in many parts of the world are in a sustained rally.

As of the end of last week, there had been 40 upticks in key indicators of economic activity around the world. The United States, China and the developing economies are leading the renaissance, which is consistent with past recoveries. Europe and Japan are lagging, although they too are showing a few (albeit still feeble) signs of life. Of course, just as one robin doesn't make a spring, there are a number of key indicators, particularly those related to employment and housing, that are still weakening.

I believe the single most important number to watch is the manufacturing purchasing managers' index (the PMI), which has seven components, ranging from factory output and new orders to delivery times and inventories. The PMI has always been the most prescient indicator of both the health of the economy and stock prices. A PMI above 50 means that an economy is growing, while one below 50 indicates an economy in decline. China just reported a PMI of 52.1, meaning that the world's third-largest economy is growing again. However, the real key for forecasting is the so-called second derivative, or the rate of change of this metric. JPMorgan compiles a global manufacturing PMI that I pay close attention to, and it has just gone up for the third straight month, to 37.2, after 12 consecutive losses. In other words, the global economy is still in recession, but the rate of change for the past three months shows that we're coming out of the nose dive.

Another important point: this leveling-out occurred before stock markets began to rally. That climb has been violent and dramatic enough to capture everyone's attention, and is sure to further reinvigorate the confidence of both businesspeople and consumers. My experience has been that the stock market is a very perceptive forecaster of the direction of the economy.

Even as March's PMI was rising, the new-orders component went up, as did factory output. Consumer demand has strengthened. At the same ...