Posts

Showing posts from May, 2009

A Recovery or a Reflexive Rebound?

April was good for stocks and generally for investors. The markets continue to move higher in early May as we get more information about housing, unemployment and the financial sector.

Are we seeing light at the end of the tunnel? Is it a train? Yes, there are those who argue that this is "going to be ugly for some time." There are arguments to be made supporting their position.

1. Banks may need to write off $4 trillion globally -- bad loans and worse investments. They could earn $400 billion in profit annually and we would still see a 10 year recovery period (source: Financial Times of London).

2. Consumers have radically increased savings by reducing spending and credit usage. When you strip away Medicaid/Medicare and other funny elements of Consumer Spending, you find that true discretionary spending is down 20%. If this lasts then yes, we are in for a prolonged recession or stagnation (no growth) for 3-5 years. At that time, net worth/income to debt ratios will …