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They Were Saying the Same Thing in 2001.

By the middle of 2001, the marker (rightly) saw that we would soon get out of the recession. That's the good news. The bad news is that we would get out of it in the worst way, with historically weak (corporate) credits ihreatening a credit crunch. The realization didn't hit until 2002, when the markets fell sharply during what was supposedly a "recovery" year.

A similar situation may be shaping up today. The good news is that market sees the light of the tunnel at the end of the recession. The bad news is that it is pretty narrow, mainly capital goods and materials based. But the heavily indebted U.S. consumer is the "caboose" in this recovery. Thus, continued U.S. growth depends on developing countries like China to "consume" a lot of machinery and materials. If there is a setback iin this (or similar) countries due to avian or swine flu, or the "Credit Anstalt" (NYSE:HSBC) scenario I posited yesterday, there goes OUR recovery.

In my (2004) book, "A Modern Approach to Graham and Dodd Investing," I opined "that 2000-2002 would be a dress rehearsal for something far worse in 2004-2006.." I now amend the latter to 2008-2010. So far, 2008 followed the 2000 script (but in a worse way), and 2009 is following the 2001 script; a dip, followed by a recovery. But 2002 was the worst of the three recovery years. And if 2010 is "worse than" 2002, based on fears for a "double dip," that would be pretty bad.