Robert Mcdowell

Hitting Bottom Is Inevitable, Subsequent Growth Is the Real Concern

There is a parsimonious view that bottoms are false bottoms if they have a lot of federal sponge padding. But, padding helps to make hitting the floor comfortable plus adding a little spongiform bounce. Until now the focus has been to restore confidence in the banks in terms of their capital reserves and finance for their 'funding gaps'. But, while that should start restoring some weight to banks' share values, there is a big fear that banks' own internal confidence has been so shot to pieces they wouldn't know when to respond positively to the economy turning round and heading north.
Banks historically overshoot the recession cliff - like the cartoon characters running off the cliff who only fall the second after they look down. They are also several quarters late traditionally in responding with new loan growth to economic upturn. They spend the first 2-3 quarters of recovery taking profit in deleveraging, almost like assuming recovery is just a dead cat bounce. If government doesn't nationalize it can at least try and force the banks to be anit-cyclical right now and be immediately pro-cyclical once recovery is happening. How do we know when that is?
Well, let's assume recovery as it zigzags forward as usual is here when the next lows start being higher than the last lows and the next highs exceed the last highs.