We're glad you got over your depression, Mr. Market, but we are very worried about your new case of amnesia! The market rallied Monday because an economic authority declared the recession to be over, or to have been concluded for some time now. Hello! Where have you been, every trader who bought on that news! Yes, the recession is over, but we all knew that already. The actionable news for the last month or two has been that the economy is slowing again, and threatening entering into recession once more.
It was as if the entirety of the investment community took a hit to the head, perhaps by an IBM mainframe computer of olden year, given IBM's deal news (IBM). The National Bureau of Economic Research issued a paper Monday reporting the trough of the economic cycle was June of 2009. In other words, the recession officially ended 15 months ago. The historians also traced the start of the recession to December of 2007, which makes it an 18 month long wonder, the longest recession since World War II. Woo hoo, the king is dead!
Long live the king!
Sorry to spoil the party, but much of the more recent economic data reaching the wire has had a bitter taste to it. The time to celebrate the end of this recession was wisely already partied up by a smart group of stock investors in 2009, from the stock market trough in March of that same year. Rather, Monday's rally in the Dow of 1.4% was likely a foolhardy endeavor, simply following Tea Party inspired rise of last week. I refer to the NBER report itself to make my point, and I quote: "Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion." Sometimes applies to this time perky people.
Importantly, the NBERs noted, any recession that were to occur now would be a new one, independent from the old. I beg to differ fellas! Any recession that occurs now is directly tied to the last one, and a result of it even. You know, the other day I heard PIMCO's El-Erian call unemployment a leading indicator, and he emphasized it as if he were the first to say such a thing. Does he think that nobody reads The Greek? Sure, I once called a guy a bozo (in 2008) for saying the same thing, but I figured out pretty early that unemployment this time around would be heavy and anchored, thanks to technology gains both on the production floor and tied to the efficiency achieved in many management processes due to new software and other wisdom. That's not to mention all the changes that occurred within the financial sector, and all those mortgage brokers learning new skills (panning the beach and pick pocketing very likely). And what about the return of unretired seniors who need to pay the electric bill sans 401K savings.
OECD Chimes In
The economic expert analysis did not stop at the NBER today. In fact, embers also burned at the Organization for Economic Co-Operation & Development (OECD). The OECD concurred on the other's finding of economic growth since mid-year 2009. The OECD pointed toward 2.6% GDP expansion in 2010 even. Though, it offered conflicting news on employment, reporting an improving situation while also stating the unemployment rate did not reflect that, or some sort of nonsense like that. Our economy needs to grow faster than 3% or so in order to add jobs, and so the group rightly noted that long-term employment remained concerning.
The OECD Secretary-General, Angel Gurria, repeated what is now considered common knowledge (though once only included our voice here), that the economy has hit a soft patch. Still, he sees no chance of a double-dip recession (that is because it's not occurring now; otherwise he would be presciently forecasting it I'm sure), but also finds inadequate economic growth to heal the labor market.
In any event, the market soared Moday on this news, on a lesser loss at Lennar (LEN) and another tech takeover. Meanwhile, the Housing Market Index was stuck in the pits. Don't worry though, the rest of the week will offer adequate economic data to knock the amnesia out of the market. Considering this gain came on light volume, and remembering last week's consumer sentiment disaster, I would say now is a good time to take your short-term profits and some DHA for your memory issue, Mr. Market. By the way, in case you forgot, the recession is over.
Disclosure: No Positions
