So Long, Recession; Hello, Recession 14 comments
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So many market professionals missed reading last year's blue chip bear market of 2008 because they did not recognize the different markets that unfolded before their eyes throughout the year. If they disagree with this statement, then their clients' accounts should be up for 2008. If that sounds too obvious, bear with me.
The major difference between an inexperienced and experienced NFL quarterback is the ability to read shifting defenses. Even experienced quarterbacks facing an unfamiliar defensive scheme can throw an interception on any given Sunday. The type of unfamiliar shifting market that occurred in 2008 is occurring again in 2009. Only bonds survived the hellish 2008 markets. Most bonds will not survive 2009.
We confronted in 2008:
- a collapsing residential real estate market,
- a banking crisis,
- tapped out consumers,
- rising energy prices,
- the eve of a global recession,
- an overbought stock market,
- a credit freeze, and
- denial of the first six items.
In 2009, we are confronting:
- massive layoffs,
- an oversold stock market,
- artificially low but rising interest rates,
- too much federal deficit spending and stimulus,
- falling state and federal tax receipts,
- a contracting economy,
- a collapsed real estate market,
- cautious consumers,
- an erratic dollar, and
- rising energy prices.
So far this year, cash is king. On June 5, 2009, the S&P 500 closed at 940.09 versus 1400.06 on June 6, 2009 or 903.25 on December 31, 2008. Investing in this market will only get tougher for the balance of this year.
The recession that began in 2007 will most likely end in the 3rd or 4th quarter this year. The worst of the old banking crisis is behind us. One half of the 2002-2007 real estate market is dead and buried. The spring 2009 cyclical bull market ended the secular bear market 2008 down leg. The initial economic collapse from the frozen credit markets lay behind us. Without these problems, an economy can mend.
However, before 2009 is over, we will also experience; the end of quantitative easing by the Feds, a 5% 10 yr Treasury note and 7% mortgage rate, a 700 S&P 500, the collapse of commercial real estate, additional declines in residential real estate, contracting lines of credit, 11% unemployment, a weaker dollar, higher fuel prices, and cautious consumers and businesses.
In any given year, these ingredients would pose a better than 50/50 chance of pushing a growing economy into recession. If you believe that the economy will grow out of the current recession this year, stay out of recession in 2010, and shake off the damage from 2008, based on the stimulus package passed by congress and newfound consumer demand - and cash to go with it. Then drop back three steps and attempt the completion.
However, if you throw an inception for a loss, with your clients' principal, you gambled again and lost.
Disclosure: No positions
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This article has 14 comments:
Be careful what you wish for and don't cut off your nose to spite your face!
No he didn't.
On Jun 07 01:04 PM roguespeare wrote:
> Respectfully Mr. Clark, you can't have a further collapse in real
> estate, contracting lines of credit, 11% unemployment, and a weak
> dollar and have a 5% treasury yield and 7% mortgage rate. But you
> can have a S&P 700 and a 3% treasury because the "spring 2009
> cyclical bull market" was nothing more than a correction within a
> long term bear market. Hold onto your shorts: our dollar will become
> worthless and, since oil, gold, copper, wheat, and corn are denominated
> in dollars, we will have a deepening recession and rampant price
> inflation. Buy TIPS, hold bonds, and keep some cash.
On Jun 07 10:08 AM Mark123 wrote:
> if you throw an inception for a loss,,,, or do you mean "interception"
On Jun 07 11:21 AM claudio.lane@att.net wrote:
> How can this article receive only two comments one of which is an
> idiot. The writer is in my opinion correct on the assumptions and
> if true the previous observations were outstanding. As for me I am
> going to start following Marvin Clark
On Jun 07 10:10 PM Jasper M wrote:
> Good article.
On Jun 08 01:18 AM dasd wrote:
> OIl need to be at $10 barrel. I'm tired of funding terrorists with
> petro dollars.
> good articles...
>
> When folks finally see that they can’t just get someone else to pay
> for all this, there will
> likely be a huge tax rebellion which will cause more short term problems,
> but may in the
> long term (hopefully) have the effect of getting the government to
> manage our money better.
>
> In the meantime, let’s hope we don’t have too many large national
> disasters, military
> conflicts, pandemics or the like to deal with. This country is in
> a lot of trouble and we
> need to start thinking like Americans instead of Republicans or Democrats
> if we’re going to get through this mess……..
>
> good articles: fhurl.com/c9055 recommended reading
We're not yet at the bottom, and things will get more difficult. The boom in the stock market is premature by at least a few years, and will come down in the fullness of time.
Difficult, yes--but the comments here are by people who want things to get worse, if only to complete their grim predictions and to give themselves the full taste of schadenfreude.