Monday, July 27, 2009

Trust Your Gut......Not Leading Indicators.

If the NY Times pens that the recession is over, then it must be so.

"As can be seen in the accompanying charts, six of the seven recessions since 1960 either ended in the month the indicator first showed a 12 percent annualized gain, or had ended a month or two before the index did so."

"The exception was the 1990-’91 recession, which was followed by one of the slowest recoveries ever. The official end of the recession was in March 1991, but the recovery was so tepid that it was not until December 1992 that the economic research bureau made that call. As it happened, December was the same month the indicator first showed such a strong three-month rise."

Economists, conference boards,and surveys can say all they want about the economy, the contraction we have seen was something out of left field. The only reason we are seeing any type of positive macro economic data is all of the stimulus that has been pumped into the market.

Even if the recession is officially/statistically over by August/September, does that mean that:

Unemployment stops rising?
Foreclosures stem?
Housing stabilizes?
Credit expands?
Credit Card Delinquencies slow down?
Bank Balance Sheets get cleaner?
Commercial Real Estate Defaults ease?

My gut tells me that most are saying the market is rallying because of the psychological implications of the recession ending.

OK...Then what? After the recession officially ends, what positive news flow is there to extend stock equity prices?

1 comment:

  1. The markets need something to hang its hat on. We all know that liquidity is gone from today's market, and that program trading is really where its at. At this rate, the Dow would have to go back to 14,000 for me to break even on my funds and 401k.