When the sub-prime crisis rocked world markets on July 27, New Zealand's sharemarket followed the same dismal path as Wall Street. It sank almost 10 per cent in less than a month.

But the NZX-50 index stopped just short of a fresh closing high on Tuesday and overseas markets have also recovered. The sorry episode appears to be fast disappearing in the rear view mirror.

However sharemarkets do not represent any country's entire economy, and some commentators argue the fallout from sub-prime and the credit crunch that followed represents a huge change in financial fundamentals that is likely to run for some time yet.

Sharemarkets received a huge shot in the arm from the half a percentage point cut to US interest rates by the Federal Reserve Bank last month.

The move was hailed as an example of the "Greenspan Put", an implicit guarantee the Fed would act if things got too dicey in the sharemarket. In any case, it restored confidence to Wall Street and global markets, at least in the short term.

And while the credit squeeze saw a string of bank failures, including that of Northern Rock in Britain, more confidence has been restored since some major institutions disclosed the extent of their losses resulting from exposure to sub-prime.

Man Investments' head of institutional business in Australia and New Zealand Urs Alder, in New Zealand this week briefing advisers on the implications of the recent turmoil, says that while the losses are bad news, markets dislike uncertainty and it's a case of better the devil you know. Alder, who worked for Man's "fund of hedge funds" Glenwood in the US before taking the job in Australia, sees plenty of fallout to come. "My opinion is clearly we haven't seen the bottom of this."

He says there are limits to the power of the Greenspan Put. "Trust has to come back into the system. If that doesn't happen the Fed can do whatever it wants and in the short term, sure, the equity markets move up. But the Fed cannot force the borrower to buy or consume and they cannot force the bank to lend."

He believes the probability of a US recession has risen significantly, putting it at 45 to 50 per cent.

Alder is convinced the US housing downturn has further to play out, and falling house prices means increased mortgage defaults, especially as the low "teaser" rates enjoyed by borrowers for the initial period of the loan roll off.

That means the sub-prime situation could get worse, but it will also likely impact on US consumer demand.

"Harley-Davidson has restated their expected sale of motorbikes down quite a bit. What that tells us is that even the high-end consumer market is affected."