The case for a quick recovery

[REWahoo]

With all the press over the past few months regarding "the end of the world as we know it", it's nice to see an opposing view:

"Some economists think that because the current downturn has been so sharp, that sets the stage for a stronger and faster rebound than many now expect."

"The crisis in financial and credit markets sparked by the Lehman Brothers bankruptcy in September caused businesses to slam the brakes on production much harder than justified by reduced demand alone, according to Joseph Carson, chief economist at AllianceBernstein."

"...when things start to show signs of improvement, the economy could well be helped by pent-up demand from consumers who sharply curtailed purchases in recent months."

Note the qualifying phrase "when things start to show signs of improvement." Guess that's considerably more optimistic than saying "if things start to show signs of improvement."

Current economic pain could lead to gains ahead - Jan. 12, 2009

 

[NW-Bound]

I would be quite content with a slooow recovery, thank you.

Slow as in getting back to my Nov 2007 high in 2 or 3 years. Let's see, at 26% loss and 4% SWR, that's my living expenses for 6 years I am getting back. I can be patient.

PS. I forgot my signature. Buy, buy, buy.

 

[W2R]

REWahoo, I don't believe for a minute that the recovery will be any faster than any other, but it is sure pleasant to consider!

If the Dow would just get back into the 11,000's in 2009 or 2010, I will be extremely happy and content. Those heady 14,000's of 2007 would be great, but it is hard to imagine that we would be experiencing that kind of market any time soon.

 

[RonBoyd]

See my Signature lines.

 

[RonBoyd]

Also interesting are the predictions of just what the Market will look like once things "settle down":

The Inevitable Consolidation of Retail Brokerage | Cake Financial

Information Arbitrage: Wall Street, Circa 2010: Disaggregation and Specialization

 

[RonBoyd]

Okay. I'll keep pumping air into this thread.

Today's MarketWatch e-Newsletter comes with this insightful Editorial comment:

The string of infamous investment scams goes back nearly 300 years in an unbroken line that tracks the gullibility of people whose greed overcomes their common sense and the ability of scurrilous characters to take every advantage of human foibles.

... And it isn't necessarily our penchant to buy into get-rich-quick schemes or trust scam artists who talk a good game about big returns that gets us in such trouble. It can be nothing more complex than believing in predictions that are just that -- predictions.

... For so many people with battered nest eggs, that is a pretty enticing view to embrace.

A lead up to this article:

Doomsayers warn: "No Recovery before 2010"
(A fairly lengthy article by Paul B. Farrell)

 

[TromboneAl]

Note that I timed my rebalancing to the exact top of the dead cat bounce (Jan 2).

But I expect a better than expected recovery.

 

[ziggy29]

Note that I timed my rebalancing to the exact top of the dead cat bounce (Jan 2).

But I expect a better than expected recovery.

No reason to think the future will continue to be like that, but since mid-October anyone who alternated between going long with a 7900 Dow and going short with an 8900 Dow has made quite a bit of money...

 

[REWahoo]

Doomsayers warn: "No Recovery before 2010"
(A fairly lengthy article by Paul B. Farrell)

I've come to believe Farrell must own controlling interest in the black paint market. Does he ever write anything that doesn't boil down to gloom, despair and disaster await us just around the corner?

 

[RonBoyd]

gloom, despair and disaster await us just around the corner?

It doesn't?

Actually, the last time I read anything by him was a couple of years ago so couldn't prove it (his leanings) by me.

 

[Nords]

Does he ever write anything that doesn't boil down to gloom, despair and disaster await us just around the corner?

We'll have to pair him up with Grantham at a party and see if we can get a couple drinks in them...

 

[Architect]

To me a good investment plan isn't based on hope. I'll take Shillers view on the matter.

Leading economist fears decade of weakness in US


Leading economist fears decade of weakness in US - Times Online

 

[2B]

We'll have to pair him up with Grantham at a party and see if we can get a couple drinks in them...

Pair me up with anyone and you can get a couple of drinks into me.

 

[NW-Bound]

Quick recovery or slow recovery, it is OK to me.

As long as it does recover ... at some point in my lifetime.

 

[samclem]

I saw more hope than analysis the original link, but we al need hope, i suppose.

Hey, we should be proud of our economy! What used to take 660 days we can now accomplish in half the time! (link)

In the big scheme of things, it doesn't matter much to me on a personal level whether the market recovers in one year or 10. What really matters is the overall performance of all the relevant asset classes over the next 20-50 years--compared to inflation.

 

[Hobo]

I see the housing market prices almost reaching the level where they should be. Banks certainly have been given a grand boost from the TARP, and the banks are the fertilizer that make good business grow.

The Obama stimulus plan should pump in another $1 trillion into the economy, so something could happen quickly. If Obama puts the money to create jobs - that means he will be growing companies.

With many people deep in debt and credit scores low, it may be a few years until consumers can get credit again. This would keep American consumer spending at a reasonable level, which keep inflation relatively low. It could increase investment in the market again.

Growing companies, low inflation, full employment - this could quickly grow the GNP quickly along with exports. Ergo, fast recovery.

 

[FinanceDude]

I see the housing market prices almost reaching the level where they should be. Banks certainly have been given a grand boost from the TARP, and the banks are the fertilizer that make good business grow.

Many banks are still on perilous ground, even after TARP.........

The Obama stimulus plan should pump in another $1 trillion into the economy, so something could happen quickly. If Obama puts the money to create jobs - that means he will be growing companies.

Most of the jobs he will create will be GOVT jobs, those jobs don't raise GDP long term.........

With many people deep in debt and credit scores low, it may be a few years until consumers can get credit again. This would keep American consumer spending at a reasonable level, which keep inflation relatively low. It could increase investment in the market again.

So, Walmart will succeed and 20 other retailers will fail, how is that going to spur on the economy??

 

[RonBoyd]

Many banks are still on perilous ground, even after TARP.........

In Michigan, Bank Lends Little of Its Bailout Funds

 

[TromboneAl]

Hey Sam, can you extend those curves to show the recoveries?

 

[samclem]

Hey Sam, can you extend those curves to show the recoveries?

I'd be worth a lot of money if I could extend the blue line about 200 days to the right!

The graph was a cut and paste from something found at the linked site. I'll see if I can find a more complete graph elsewhwere.

 

[mf15]

Don't really see recovery until housing comes into line.
My laymens take on what is wrong. Way back in 1974 first married, both made about
10K, both cars paid off,no debt. Of course my new Plymouth Duster only cost 2800. Was able to save about 15-20K by 1976, bought first house brand new 40K. Bought second bigger house brand new 1979 only me working for about 15k, house cost 69K. It was a stretch with only one working, had 3 little kids, but made it, still in second house. So my simple distillation of the problem is that the cost of housing and living in general needs to come in line as to where ONE salary can support an average middle class family and its costs. By the way in 1976 there was also a housing recession so we got a 2000 tax credit, which brought the house price to only 38k. If they want to jump start the housing market, prices need to come down, and a tax credit, not a deduction is needed. Can't remeber what gas cost in 1974 but in 1972 after I returned from Korea was in the army it was .32/gal.
Old Mike

 

[samclem]

Here are charts showing the first twelve months after the market bottomed out, with descriptions of how long it was until the market fully recovered. Sorry, not on one sheet. All this talk of "triple bottoms," "V-shaped vs U shaped recovery," etc serves as a reminder that we are now inhabiting the hall of mirrors known (laughably) as "technical analysis"--a special field of practice capable of explaining anything and predicting nothing. The only take away worth having (IMO): The stock prices took a lot longer to recover than they took to go down.

 

[ziggy29]

The only take away worth having (IMO): The stock prices took a lot longer to recover than they took to go down.

Not surprising to me. Greed is a powerful motivator for many, but for the masses I think fear is a lot more so.

 

[RonBoyd]

Oh! Well... this explains it all.

(slow paced but interesting)
Why 'bad banks' might be a good thing

 

[youbet]

Don't really see recovery until housing comes into line.

Housing won't "come into line" until we have employment and non-real estate investment performance improvements.

I think the real issue is that employment/wages and non-real estate investment performance has to improve so that people can afford higher prices for real estate. Housing prices won't rise while folks can't afford the higher prices (most can't afford today's prices!) without risky zero down, ARM, interest only, etc., mortgages.

So, I agree, a full recovery will require real housing to recover. But a housing recovery won't happen without employment and non-real estate investment recovery first.

A population out of work or under-employed and with their investment portfolios in the tank isn't going to be bidding up the prices of homes.....