No End in Sight for Recession
I recently heard someone on CNBC talking about how the market was getting ready to rise, and that the recovery had started. (This was based on the fact that the S&P 500's 50-day moving average was rising above its 200-day moving average.) I listened to this babbling for another 2 minutes or so, then had to turn it off.
We keep hearing that the market is "telling us something" -- usually that the recession's going to end, and that the market looks out about 6 months. This is rubbish.
Riddle me this, Batman: Did the market see the recession in October of 2007? We were already in recession, and the S&P 500 (see below) was making new highs. Where was the market prescience? Did it see the 25% drop in January of this year?
I could go back and cite scores of examples where the market "missed" the future turning points over the past 10 decades.
Click to enlarge.
What about the shibboleth that the market turns up 6 months before the end of a recession? Sometimes that's true. But does it mean anything? The same people who said it meant something in December and January are saying it means something now. But now it's June, and the recovery's not here -- so maybe the market wasn't telling us something in January after all.
Gentle reader, there will be a recovery. And, statistically speaking, it's likely that the markets will have turned up before the actual recovery. But does that mean anything today?Go back to the chart above. Notice that, in 2003, when the market finally turned up, we were already well out of recession. The market had a very quick 12% or so drop while we were in recovery, and later we went on to a 90% run-up! Was the drop telling us anything?
(I saw some reports that differed, which selected fewer such data points and suggested that market returns were up after such an event. Logically, that can't be. Let's be generous and just assume they were based on sloppy research.)
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
Looking specifically at economic downturns following a financial crisis, their research strongly suggests at least a three year period between the peak and trough for equities markets.
I am hard pressed to find any substantial reason for thinking it will be "different this time".
In fact, there is a large amount of evidence that the current situation will be more severe and longer than past events.
I personally don't know anybody who is now saving (forgoing purchases) and putting this "saved" money in-the-bank for purchases at a MUCH later time. Nope, I see people in panic mode "not spending" but this is entirely different than consciously deciding to save for "the future".
When this "media caused recession hysteria" blows over (and the Dow hits 15k again) the American consumer will revert quickly back to their child-like ways and borrow and spend every dime they can get. The ONLY thing that will stop them will be the inability to borrow, NOT some magical change in behavior that has turned a nation of children into a nation of responsible adults. Mass social behavior changes only come about as the result of a questioning of the current "truths" about the society. Most of the Americans I know are still convinced they are entitled to a good life simply because "`merica is the best" and it's "THE best" precisely because there's unlimited consumption (allowed by unlimited debt, which is unlimited because - uh - `merica is the best, and it's the - uh - the best because of unlimited consumption, which is - uh - unlimited because `merica is the best, see? Like, dude, we're - like - totally the best, dude... Don't ya see?)
Globally across all asset classes it's a zero-sum game, something's got to give.
Thanks for your thought-provoking article.
More good work.
This reminds me of what you said in "Bullseye"
I would paraphrase it as "repeated disappointments are what eventually bring down P/E ratios"
Of course this time could be different with possible repeated government intervention. But even so I could see disappointment as the end result with that reset to the new normal.
I also think you pointed out that range bound markets last years to one generation.
