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Originally Posted by Damnsammit  Seems like most people are saying that the worst part is over, but you don't agree with that. I have read your points and it either looks like they aren't as big as you make them sound or every other economist is either overlooking that or just flat out lying about their views on the recession.
Why would they do that? To calm the fear and encourage spending? Or do they have put options on companies that they expect to fail? |
This is the battle of V shaped recovery vs L, U, and W.
Under a V shape scenario you would have exactly what we have now by looking at a chart. A severe left side of a V with the right side meeting about 38% of the way back.
Most reasonable strategists are targeting more of a W shaped recovery. With the market forming the middle of the W right now.
The L and U would be people who believe we are going to go through a 5 year to decade long flat trade. The U would represent a very sharp recovery at some point (like say the sharp rebound in the American economy at the onset of WWII). The L would represent a very very protracted period of flat line trade and growth.
I for one believe this recession is targeting almost to the day the 1929 depression. In 29 the market lost nearly 50% in of its value in a very short time period... literally 3 weeks. Now after that there was a very sharp and significant bounce over the next few quarters that had the market rebounding an impressive 94% which placed the Dow barometer index a mere 20% from its highs the day before the crash.
Then look what happened. The market lost another 70% for a total of a nearly 90% loss... and a new trading range developed that experienced very impressive rallies including one that was 5 years long but really were nothing more than bulls in bear clothing. At the peak of that rally the market loped off another 40% (from the rally high) and really the only thing that stopped the bleeding was the onset of a global war.
Now think about what we have learned from this recession. Cheap and easy credit fuels growth at a cost. nearly 3 decades of massive wealth generation was essentially built upon the basis of leverage. The thing is that much of this wealth (as we are experiencing) was paper driven. Take a look at your 401k. What does it look like? It looks like a piece of paper to me. Granted it has meaning and substance... but its not tangible until you take receivership of it. All of the explosive growth we have had in service sectors, financial sectors, real estate sectors, consumer driven product sectors... its all based on a compounding idea that as we get money we can turn it into more money by using leverage. Then when we experience a slight down tick as this recession 'could' have been the entire house falls down. Why? Because leverage employs the power to use 1 real dollar and 10 play dollars to have the purchasing power of 11 dollars. The only problem is that if what you invest in ends up worth to say 5 dollars. You only have that 1 real one in the bank as they call you asking for at least 3 to cover an acceptable margin.
Basically we are experiencing the first wave of de-leveraging.
That money (which really wasnt there in first place) is GONE. Its not coming back for a long time if ever. Yeah you hear about all the cash on the sidelines and such just waiting to jump back into the market. Well... That is true to an extent but not nearly the extent the media makes it out to be.
I think of this recession as a tsunami that is about to unleash its second and far more severe flooding wave.
Sorry I have to cut this short. I have to finish an end of week report.
Ill add more later or monday.