08/04/09 Baltimore, Maryland
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.”
Ian Mathias
Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.
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I’m bearish, too, but isn’t there some economic outcome that is between a collapse and a full-throttle recovery?
Isn’t is possible to have a “second wave down” without having Armageddon? And that a NBER economic recession can end without lots of job growth?
I think that is what they are saying – it’s bad, we might be bottoming, there could be further declines, even if not things won’t be rosy, but that a total global economic collapse into GD2 isn’t likely. That is not internally inconsistent.
gd2 has already started….this gobbley gook from newsweek was the same drivel spewed in the early 1930s before the market lost 89% of its value and real gdp shrunk by 8.6%, 6.4%, 13.0%, and 1.4% for 4 consecutive years starting in 1930…..
an nber recession can end any time nber decides it’s over but has the fat lady really sung with 20.6% unemployment and q2 earnings for the sp500 down by 34%? y.o.y gdp is down 3.9% for q2….is there evidence for regular growth when banks are utterly insolvent….the joke with guaranty and a few other big names is no longer funny….fdic can’t afford to seize AND sell them…negative tier 1 capital is a real problem which higher market index values will not solve.