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The "Recoveryless Recovery"

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Recovery? What recovery?

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Before we can address the question "is the bottom in?" we must answer the question: "the bottom of what?" Moreover, we must also state a timeframe. The latter is critical.

  • In general, when I say the bottom may be in, I am speaking of the GDP. Yes, GDP is a very flawed measure, but given all the economic stimulus, it is highly likely the GDP will rebound for a quarter or two, perhaps more.

  • In regards to the recession, expect to hear announcements that the recession is over coming soon.

  • In regards to the stock market, I have repeatedly said "the bottom MAY be in". Personally I doubt it. But it could be.

  • In regards to unemployment, there is no way the bottom is in.

  • In regards to housing prices, the same applies. The bottom is not in.

  • In regards to housing starts and permits the bottom is probably in.


Now, assuming "the bottom is in" for the GDP and the recession will soon be over, the next question is "for how long?"

Most know that I am in favor of an "L shaped recession", but that definition includes a "WW" or even a "WWW" where the economy slips in and out of recession for a decade, as happened in Japan.

There is no reason to think that consumers are going on huge, sustainable shopping sprees soon. However consumer spending needs to to be balanced with the government throwing money around like crazy, not just in the US, but also the Eurozone, the UK, and especially China. Moreover, an inventory rebuilding process will occur at some point. It may have already started.

However, given that unemployment is likely to rise for another year, this is likely to be a "Job Loss Recovery" or as "Michael" commented on my blog a "Recoveryless Recovery". Indeed, if one is waiting for a recovery in jobs then a recover is a year away at least. However, the NBER will focus on improving GDP and various other factors and not just jobs when deciding the end of the recession.

Whether or not the stock market has bottomed depends on the US dollar. If the US dollar sinks to new lows, the bottom in the stock market is likely in. If the US dollar manages a major new high, I surmise the bottom is not in.

No one really knows. What we do know is currency debasement is not just a US phenomenon. Global currency debasement by central bankers everywhere is underway. And since things are relative, one should NOT be surprised to see the US dollar make new highs. However, my favored scenario is the US dollar will fluctuate in a wide trading range which makes it touch and go as to whether the stock market bottom is in.

At this point, the market has priced in a strong recovery, something that is not going to happen. And even IF the bottom is in, the market is likely to do nothing from here (at best), for quite some time.

This is also the "pain trade" in many ways for many people. For example, pension plans still have lofty as well as unreasonable market expectations going forward, jobs will remain difficult to find, and boomers headed into retirement hoping for a return to new market highs to "get even" will be frustrated time and time again. Things are shaping up as that have in Japan, with "two lost decades".

In short, the bottom may be in, but you may need to lock up those party hats because most will not see it in terms of jobs, wages, home prices, and the stock market. From many angles, the most likely scenario is a "Recoveryless Recovery".

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No positions in stocks mentioned.
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