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Could The Recession Be Over? at Trader’s Narrative




Could The Recession Be Over?


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More than a year ago I called it: We are in a recession!

It was rather foolhardy to go out on a limb like that but with the help of hindsight we now know that that was quite a prescient call. What I didn’t expect was that we would be entering one of the most serious recessions we’ve seen in recent history.

Since the National Bureau of Economic Research has been keeping track of them, we’ve had 22 recessions (including this one). However, only 4 have been longer in duration:

length of US recessions chartoftheday
Source: Chart of the Day

It may be just as foolhardy to now do an about turn and declare that the ‘Great Recession’ is over. But we are seeing some indications of that. The bad news is that the sharp contraction in inventories that we’ve seen has been unprecedented in recent economic history. The good news is that such drawdowns have historically signaled the end of recessions:

US manufacturing wholesale inventories recessions
Souce: Doug Kass at theStreet.com

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9 Responses to “Could The Recession Be Over?”  

  1. 1 blues

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    Recession be over? And what’s American going to do? The last of great manufacturing is gone (the auto industry). We no longer have any meaningful manufacturing job. So what’s American going to do? Service ourself to death? And what about all those debt rack up by citizen and government, they are not improving, forget about improving they are racking up more debt! So what they going to spend? Borrow money again?! Ya, that’s going to do it.

    Plus we going to have higher interst rate and higher commodity (such as you see gas price is going up again) cost, how can we recover?

    Again, America is gone… we are going either have a long lasting recession or a depression… no way in hell this is credit bubble going to collapse without a major depression…

  2. 2 blues

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    Simply ask yourself this question, should SPX still be this high at 900s or even 600s? Shouldn’t we be back at 200s? Are we better off now then in 1980s? I think we should at least wipe out all the breakout from 1990s. We have more (much more) debt now then in 1980s. We have less of quality job (like manufacturing). What did we do? Replace high pay GM job (well back then) with low pay Walmart minimum wage jobs? You think that’s good? Is the quality and salary of jobs that much better then in 1980s?

    I think none of those are better then 1980s.

    So tell me why are we at 900s? Or people even think we going back to quad digit? I even think 600s is too high for the condition that we are in now…

  3. 3 wayne

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    Blues, my response would be that it is very possible that you underestimate the short term (12-24 mts) impact on the stock market (if not the economy) of the greatest govt stimulus package in history.

    I stress short term. “What you sow, so shall you reap”, and eventually all the borrowing and bailouts will come home to roost and the result will be a long secular bear market for the next 5-10 years, but for now there is a party on Wall Street financed through our children and it can last longer than one would logically expect.

  4. 4 blues

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    Wayne, exactly and that’s what pisses me off the most, nobody is doing at sh** about it and just let our government waste our future off like this. Everybody think government is trying to help us but instead they are killing us…

  5. 5 Babak

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    blues, what do you think is the right course of action (specifically)? I’m curious to hear some of your ideas.

  6. 6 wayne

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    Babak/blues

    Our forefathers did a great job of designing our govt with the idea of as many checks and balances as possible to keep politicians in check. I suspect if they could have a do-over, they could make additional improvements.

    Limiting one’s time in office to 8 years and then allowing them to stimulate the economy with funds from the next office holder’s term is obviously a recipe for problems and there is little incentive for them to do otherwise.

    But ‘Out of Chaos, comes opportunity’ and the timing will probably be right in the next decade for political candidates to run for office on the idea of legislating a balanced budget over a certain time frame and mandating that it stay balanced unless certain emergency situations arise. If the budget is not balanced, mandated tax hikes and govt cutbacks go into play. This will be a tough pill to swallow, but it’s time may have come.

    I think Gingrich’s days are behind him but his idea of a contract with America would probably fly well over the next decade in a repackaged form. If times get bad enough, maybe some permanent legislative changes. I think possibly a Steve Forbes type candidate will have a shot sometime soon. Someone with financial savvy and the ability to think outside the box.

  7. 7 Lou

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    Blues and Wayne, I wonder if there is any historical precedent for our situation?

    First, our debt-to-GDP ratio is very similar today to what it was in the WW2 timeframe, 1945 to 1950.

    http://zfacts.com/p/318.html

    It seems we are already seeing a dramatic turnaround in the stock market vs. earlier this year, and there is a lot of sentiment that the recession may be over soon, even tradersnarrative thinks so. Keep that in mind momentarily while considering that only about 7% of the stimulus money has been spent. What happens when we continue right on spending the other 93%?

    http://rutledgecapital.com/2009/06/03/how-much-of-the-stimulus-money-has-already-been-spent/

    Let’s go back to our debt-to-GDP ratio. What was significant about the 1945-1950 timeframe is that we were on the back side of massive deficit-based stimulus spending in the form of WW2. There are many parallels that can be drawn between that time period and today. The end result then was that all the government spending served to supercharge the economy, fueling up to a 15% real GDP growth rate (as in 1953). This growth allowed the government to pay back the borrowed funds in a prompt fashion, while making the overall debt easier to bear. By 1960 the debt-to-GDP ratio had fallen by half. A by-product was that American’s way of life improved.

    http://politics.imlac.net/?p=81

    The economic stimulus is Obama’s big gamble - it will either end the recession and usher in a new Pax Americana, or fail such that our way of life may be changed forever. Is history is on our side?

  8. 8 wayne

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    Lou

    Some historical facts to keep in mind is that during the 20th century, the US Economy survived several oil spikes, terrorist attacks, the resignation of a president, the assasination of another, 22 recessions, a depression and two world wars. During that same century, the S&P 500 rose from 6 to 1450. There is hope that the supertanker referred to as the U.S. economy continues to drudge through this mire that we are currently in and will not survive but prosper again in the decades to come.

  9. 9 bdeto

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    the Economic Recession made a lot of people jobless but at least there is some good progress on the economy this year. i just hope that the economy will continue to recover in the following months and years.

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