The Bottom
I am not an economist, so anyone who invests any money on my prognostications is insane. But here is my prediction, just for fun.
I think that if you fly down below the hysteria, there is good reason to believe that somewhere in February or early March we passed the bottom, in terms of the rate of job losses and output reductions. Job losses will continue for several months, but at a declining pace, with the low point in employment occurring sometime in the late 2nd or early third quarter. I am about 50/50 as to whether the unemployment rate will peak in the high eights or low nines. We will see real recovery beginning in the third quarter.
I am a tad less confident in this only because we have dragged out a number of reckonings (e.g. GM, some banks, some mortgages, etc) which should have occurred last year, which may delay the recovery somewhat vs. if we had just taken our medicine sooner. The big wild card, of course, is what effect massive government borrowing and tax increases will have on the speed of the recovery, and, now that I have seen this chart, on inflation.
Just to show I am putting my money where my mouth is, I moved much of my savings to equities last Thursday.
Matt:
You and me both. I am young, but I still have a pretty good mid to long term outlook on stocks. I have a large portion of my 401(k) in stocks.
March 9, 2009, 9:59 amBrad:
I'm mildly optimistic, too. Our sales suddenly picked up 3 weeks ago after an absolute brutal January through mid-February. Through this past 18 months, our sales figures have been fairly in-line with what the economic reports end up showing each month. However, I too wonder what the delay in finally facing up to the bank problems and the autos might do to drag out any meaningful start to a recovery.
March 9, 2009, 10:21 ambbartlog:
anyone who invests any money on my prognostications is insane[...]I moved much of my savings to equities last Thursday
So you are admitting you are crazy, by following your own advice?
In any case: too soon. We are due for a little spring bounce, if history follows its tendency to rhyme; but after that more declines are on the way. I still don't understand how someone who has access to all the statistics on the internet would look at the events of the past year and say 'oh yes, looks like another recession; we should be back on track in a year or two.'. Don't a few of the numbers look a little extreme to you? And why has consumer price inflation become decoupled from the money supply? How would the usual method for getting out of recession (lower interest rates) be implemented when the rates are already at 0? How is our situation and our solution actually different than what happened in Japan in the early 90s in any way that would make us more, and not less, optimistic about the outcome?
March 9, 2009, 10:41 amLink:
Cynical me believes that Obama wants 2009 to suck and will then claim credit for any turnaround we see in 2010. Consensus is that we'll be out of the recession by 2010 ... just in time for the Stimulus Bill to goose things. Obama will then have a huge fund to "make it rain" for key elements of his base going into the 2010 mid-term elections.
There's still a lot of variables that can affect this, obviously. But this thesis is the only way I can rationalize Obama & Co's behavior.
March 9, 2009, 10:43 ambbartlog:
this thesis is the only way I can rationalize Obama & Co’s behavior
Funny how it's more reassuring to believe that people are actually in control (but with self-serving motives) than it is to believe that they're confused and/or powerless to help (even with noble motives). Not that I think Obama's motives are entirely noble; but I think that if he could conjure up ponies and sunshine for everyone by tomorrow, he would.
March 9, 2009, 12:02 pmLoneSnark:
Of course he would if he could. But, he can't. As such, "make it rain" for his base at a moment people are willing to look the other way is ideal.
March 9, 2009, 12:13 pmCaptain Obviousness:
A bear market rally is very likely in the next few months (maybe even starting this month), but don't forget that the primary trend still has a steep down slope. I'm beginning to get back into equities (only companies with clean balance sheets, and I won't touch any financial stocks with a 10 foot pole) but not all at once. As long at the primary trend (200 day moving average) is still pointing down, I think it's dangerous to put all your money to work at once. Put in 20% now, 20% in a month, etc. Putting 100% to work right now is to me too much like trying to call the bottom exactly.
March 9, 2009, 12:53 pmfeeblemind:
I admire your nerve because I think you are in for a white knuckle ride.
March 9, 2009, 2:13 pmdsm:
I expect a little bounce in stocks this Spring, but I think we'll hit double digit unemployment this year. The "minimum" wage will go up another 10-ish percent in June or July. Labor purchases will be accelerated leading some to speculate that we're turning a corner, but unemployment will go right back up after the wage change.
March 9, 2009, 3:21 pmMesa Econoguy:
I wouldn’t touch this market (I do this for a living).
Options are sending all kinds of weird signals, still no good put/call ratio, vix is disturbingly tame, waiting for gold to break out, consumer credit numbers about to fall out of bed, many, many, many more bad things on the horizon – we’re a long way from any resolution here.
If you jump in now, be ready to wait a long, long time.
March 9, 2009, 6:18 pmjb:
yeah, I just moved my bond money in my IRA into the S&P. It's down since then, a bit. But I have 25+ years to retirement, I can afford to wait this out.
March 10, 2009, 6:12 amici chacal:
bear rallies/dead cat bounces are nice little bonbons to enjoy - provided you're not currently heavily short on the market. don't go thinking that makes them "recoveries", though. *especially* with the idiot currently befouling the white house in charge. say this rally manages a 20% bounce. say - just for grins - say 30%.
president socialist will see that and say, "rich white people just made $8 trillion dollars for **free**, while the poor got nothing. i'll put a stop to THAT!!" and that'll mark the end of the rally.
in the end, technicals won't matter. low P/E's won't matter. nothing will matter except the people's realization that the president of the USA hates capitalism, and will hammer it at every opportunity. and the stock prices will go down down down, lower than any reason might dictate; lower than you ever thought possible. see: carter, james earl.
March 10, 2009, 9:56 amMethinks:
I run a delta neutral portfolio, so I don't really care which way the market goes. However, I see absolutely no reason to agree with your assessment, Coyote.
We have yet to experience the effects of government "stimulus" crowding out private investment. We also haven't yet seen the incentive effects of the tax hikes - whether they are explicit through the IRS or implicit in all the shiny new spending the government is undertaking. We also haven't yet fully experience the effects regulatory uncertainty. Many people are sitting on the sidelines (as much as I hate that term) waiting to start a business either based on government subsidies to them or waiting to assess the damage that will come from upcoming regulatory clamp downs.
All in all, this looks a lot like government activity in the 1930's when private industry was terrified away from investment by public witch hunts, regulatory toying and market manipulation. I don't expect the stock market to behave any differently. In fact, I don't think we're in 1933 yet. I think we're still around 1930.
March 11, 2009, 9:51 ammarkm:
The economy would probably be recovering by now absent government action - but since Obama's people have learned nothing since 1938, I expect it to get worse.
March 14, 2009, 1:09 pm