The Worst is Over... Unless it Isn't

We’re sensing a theme to the latest leg of the sucker’s rally. It’s a lot like the first time we drove a car: One foot was on the gas, a full-blast expression of newfound joy. But the jerky acceleration wasn’t too comfortable, and that left foot broke the rule… you can’t tap the brake and hit the gas at the same time, we were told. Au contraire:

“Collapse, I think, is now off the table,” said Alan Greenspan over the weekend, pedal to the metal. “I’m pretty sure we’ve already seen the bottom… it’s clear that we’ve turned, perhaps in the middle of last month, the middle of July.”

“I do think it is possible that we could get a second wave down,” he cautioned, literally seconds later. “But the important issue is if we don’t — and I think the probability is that we won’t — that we are close to stabilization.”

So the worst is over, unless it gets bad again.

The major media’s singing the same tune… check out the purposeful irony on this cover:


Newsweek, no doubt, has no interest in repeating BusinessWeek’s infamous “The Death of Equities” cover. In fact, they seem to be poking fun at it. But still: “I’m prepared to declare that the recession is really, most probably over,” said Newsweek’s business guru, Daniel Gross. Yet a few paragraphs later, he concluded, “Without the tail wind of cheap money and a housing boom, it’s difficult to see — as it always is at the beginning of expansions — what is going to produce large-scale jobs growth.”

“We don’t know if the world’s economy has really reached the bottom of this debt-deflation cycle,” writes Dan Denning, “where the bad investments and underperforming assets of the credit boom are written down, or off altogether. Is the balance sheet recession — the reduction of debt and the write-down in assets bought with debt — really over?

“We’d suggest the answer is no. But then, it doesn’t pay to argue with markets, does it? The wretched performance of the U.S. dollar and dollar-denominated bonds leaves investors with a simple choice: Speculate on other, riskier assets or watch the value of your dollar-based savings erode.

“So we have the era of forced speculation. It’s a kind of dollar exodus. And anything that is not the dollar is a potential promised land. The upside — if you own oil, base metal and commodity shares — is that there’s a strong tail wind behind your investments.

“The downside is that the speculation may not be based on real sustainable growth. It’s just another lending bubble in China piled on the rubble of the real estate lending bubble in America. Bubbles built on rubble aren’t stable. That means you may be better off trading the shares, rather than buying and holding and getting whipsawed by volatility. It’s worth thinking about.”