miércoles, 14 de diciembre de 2016

"Are We There Yet?" - Calling the Bottom to The Recession




If you have kids, you"ve undoubtedly heard it a million times before.

"Are we there yet? Are we there yet?"

Usually you"re driving someplace far away and the kids, being kids, start getting bored almost as soon as you pull out of the driveway. Picture Bart and Lisa Simpson screeching that little phrase, relentlessly and in perfect unison, in Homer"s poor right ear.

"Are we there yet? Are we there yet?"

It"s entirely understandable. How do you tell little souls, who have zero experience enduring brutally long drives, that they"re about to endure a brutally long drive? The answer is, you can"t. They just have to experience it themselves.

Similarly, the analysts at CNBC, Bloomberg, Fox Business Network and other media seem to be squirming in their seats, clamoring essentially the same thing.

"Are we there yet? Are we there yet?"

How do you tell souls like these, who have zero experience enduring brutal recessions, that they"re about to endure a brutal recession? The answer is, you can"t.

They just have to experience it themselves...along with the rest of us.

Closer to the End Than the Beginning

...or the Beginning Than the End?

The fact of the matter is that, unless you were at least a child growing up with pretty good awareness during the end of the 1920s through the1930s, you haven"t lived through what seems to be shaping up today.

Any time after that and you grew up in an American economy that was always able, worst case, to sit up and take nourishment and move around under its own power. And while, certainly, there have been recessions, inflations and even stagflations from time to time, for the most part, these economic conditions operated quietly in the background and didn"t have much of a bearing on us one way or the other.

This time, however, like those gray Great Depression days, it may be different. What"s happening in the economic background nowadays can easily affect your short-term, mid-term and long-term decisions-decisions like changing your job, moving out of state, going back to school, even redecorating your home.

Given that, and since the network analysts have about as much experience in dealing with these unpredictable times as you and I do-i.e. none-you may wonder exactly where they get the chutzpah to call the bottom to this economic mess.

Here are a few such calls from just the last couple of days:

"It may be that a bottom has been made."-Bill Miller, Legg Mason, 12/3/08

"More and more, it looks like a bottom." James Paulsen, Wells Capital Mgmt, 12/3/08

"Despite huge job losses, the worst could be over."-CNBC, 12/5/08

"Every recession has its worst day, and this is probably the worst day."-Chris Rupkey,   Bank  of Tokyo-Mitsubishi, 12/5/08

"Severe drops like this cannot be sustained."-Robert Brusca, chief economist at Fact & Opinion Economics

You get the idea. Call it wishful thinking-or whistling past the graveyard-but there are any number of analysts out there who, like the kids in the back seat, have had enough of this are we there yet business and are more or less demanding that the recession be over right now.

Trouble is, the recession doesn"t seem to be listening.

We"ve Been At It for a Year Now

-Isn"t That Long Enough?

Not that the recession is just now getting out of the blocks. According to the NBER, the National Bureau of Economic Research, it actually began December of 2007. "NBER determines the start and end dates of business cycles, and they"ve done that," White House spokesman Tony Fratto said matter of factly, confirming NBER"s enlightened assessment.

How exactly does NBER define a recession anyway? It is "a significant decline in the economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales."

The online encyclopedia, Wikipedia, tells us that of "the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession is an average one, the downturn in the stock market should bottom around November of 2008."

Now you have encyclopedias calling bottoms!

But what if this isn"t, as mentioned, your average garden-variety recession? What if it"s more like a 100-year flood, the kind that sets those high-water marks, the kind the old-timers remember?

What if we"re actually justified in bringing the D word into the conversation?

The D Word, Stocks, Gold and You

Nothing can be more of a buzzkill these days than bringing up the word, depression (in the economic not emotional sense). Yet it might not be particularly wise to overlook it.

Let"s get back to Wikipedia: "Considered a rare but extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression."

Hmmm...seems like we"re really close on this one. So far, at least.

"After more than six decades of growth,  America  is sinking into its Second Great Depression of modern times," concluded Martin Weiss, editor of the newsletter, Money and Markets. Other prominent analysts have joined him in this admittedly dismal camp. So while you have some people calling the bottom, you have others telling the kids to settle down because they"re in for a long ride.

So let"s just say for the moment that we are in for a long ride. What that would mean is now"s not the time to engage in this pastime of calling the bottom. It would mean that the bottom is still a ways off, and we really should be hunkering down and getting defensive instead. Stocks, despite the tantalizing prospect of picking up a few once-in-a-lifetime bargains, might not be such a great idea for right this moment. Bear in mind that the DJIA high of 381.17 on September 3, 1929, the eve of the Great Depression, would not be revisited until 1954, some 25 years later.


Gold, on the other hand, that trans-generational asset of last resort, might be a great idea for right this moment. It"s built for times like this, the liquidation of all those hedge fund gold positions (to give investors liquidity) notwithstanding.

Granted, it"s only human nature to look on the bright side of things and this is certainly not a suggestion that we should do otherwise. We"ll get through this time in history. We will. But the economy is, after all, what it is and all the overly optimistic thinking in the world won"t make it otherwise.

So maybe the question shouldn"t be whether or not we"ve reached a bottom just yet. Maybe the question should be whether or not we"re prepared for whatever"s waiting for us down the road.

In that context, "Are we there yet?"o


Source by Kevin A. Demeritt

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