Zombie Bears: Time to Admit the Recession is Over
“Dude, you really love a good bloodbath, don’t you? You actually have fum when the market is getting killed.“
Prior to the collapse, there were few bigger bears than I. Kevin (my partner) constantly harangued me about it. That’s his quote above, and I admit to some level of guilt.
Understand why this was: The long hours of research put into identifying the variant perspective was a lonely path. There were no guarantees it would be correct. Worse still, it took a long time — years — to pay off professionally. I ate a lot of crow, and was mercilessly tortured by eejits over what I knew was a giant debacle in the making.
When the deluge came, I incorporated the collapse into my thinking. It changed the valuation calculus, the surprise factor, the psychology. I didn’t want to be one of those guys – the über bears who stayed negative regardless. This unfortunate crew missed the 1982 lows, the 1980s bull market, the tech boom, the 2003 post-dotcom-implosion rally, the commodity boom, the 2009 snapback.
After the flood, I started looking for the silver lining. We already had a massive crisis and collapse, so the worst of what came before was already reflected in equity prices and trader psychology.
Even after all this, these reflexive Bears refuse to flip. They will not admit the economy is getting better, albeit slowly. They insist the recession was a depression; they insist it never ended. These are the bears who cannot be killed. They will stay bearish, regardless of the data that all but insists otherwise.
These are the Zombie Bears . . . they cannot be killed.
As I write this, the market is off 1.5%, and some of our long positions will soon hit our sell discipline (We will stop ourselves out). This is the nature of asset management: One needs to be flexible, intellectually nimble, open minded. One cannot marry a position, ignore data that goers against it, and just hope for the best.
Markets on occasion appear irrational. They operate on different time scales than humans do. We are stuck in the moment, they exist across longer arcs of time. So very often, we cannot adapt to their ways. We fight them . . . and we lose.
Meanwhile GDP was revised to 2.5% (more than previously calculated) on increased exports boosted domestic spending.
Bad news, bears The Recession is over . . .
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November 23rd, 2010 at 10:50 am
First we had Zombie banks, now we have Zombie Bears.
November 23rd, 2010 at 10:59 am
Yes, in our mark to make believe world, where debt is monetized, unemployment is conservatively +10% but you can live rent free and die before paying off your maxed out dozen or so credit cards, I guess the recession really is over.
November 23rd, 2010 at 11:00 am
True BR, the recession (albeit not the real problems that were just papered over and made bigger) is most definitely over where I live, but I wonder if you didn’t just ring the bell here with this post?
~~~
BR: I was referring to the economy, not the markets, but since you asked — as of 24 hours after this post was made, we are up 1.5% from when the post was made, so . . . no.
November 23rd, 2010 at 11:03 am
PdP puts together some nice snaps, here..
http://www.ritholtz.com/blog/2010/11/commodity-prices-%e2%80%93-on-a-knife%e2%80%99s-edge/
November 23rd, 2010 at 11:14 am
Yup, looking in rearview mirror, economy was not in a depression, we’re technically not in a recession, and according to some we are in a deflationary environment even though my Turkey is 30% more expensive this week.
Time to go long was when the market/economy was turning back up. After this move, still time to be long? Climbing the wall of worry to dow 36,000.
November 23rd, 2010 at 11:19 am
I was once told that I was an optimist who thinks he is a pessimist. So maybe I have some deep belief that things will get better, and a surface pessimism.
With that background, there is “over” and there is “over.”
I am also reading this as a recovery. I think we are past the second dip, or “soft spot” as Barry preferred to call it. Just the same, I think you need a pretty academic outlook to call this “over.”
In many senses it won’t be over until we are firing on 8 cylinders(*), and we aren’t there yet. How many cylinders do you count, Barry?
* – I’m thinking I must be old to reach for that metaphor
November 23rd, 2010 at 11:20 am
I agree with Karen. Ok, we put the recession into a coma by smothering it with paper. The banks are all bankrupt. Housing is a disaster. Europe is screwed. Real unemployment is still near 20%. Deficits at record highs. And, of course, interest rates are at record lows.
So, yeah, the recession is over. Like the Korean War was over…whoops.
November 23rd, 2010 at 11:23 am
Sorry to repeat, but you guys see this one? It cracked me up and reminded me of so many idiot brokers I dealt with in my career.
http://www.xtranormal.com/watch/7644373/
Sorry, I have no idea how to imbed a clickable thingy.
November 23rd, 2010 at 11:29 am
Best quarter ever for corporate profits? Definitely a recovery (and robust one) for some. I view this is a very bifurcated recovery and economy where those at the top are doing very, very well, and likely even better than before, while most (aside from the FIRE and tech sectors, maybe) rank and file workers continue to struggle. The unemployment situation is just an afterthought at this point. Apparently our economy no longer needs them to thrive.
http://www.nytimes.com/2010/11/24/business/economy/24econ.html?hp
November 23rd, 2010 at 11:35 am
This one will be fun to revisit in six months when QE stimulus has completely faded, corporate earnings have cyclically peaked, a Spain implosion has brought down the euro zone, and housing has double dipped.
In fact, methinks this post might deserve treatment as a new “blog-style” version of the magazine cover indicator.
Of course, nobody knows for certain what the future holds. But all of the above stuff is not in the realm of unreasonable expectation. I wouldn’t bet the ranch against any of the above factors… nor would I bet against the odds that what we have just worked through, re, final blast of equity market strength and corporate outperformance in 2010, will in rear view mirror hindsight have amounted to one long post-stimulus “sugar high” (to borrow an El Erian term).
Given the current status of markets — overbought, overbullish and overextended, to use some Hussman terminology — it seems disingenuous to throw out the label “permabears” in such a manner as to lump in merely opportunistic bears who 1) have plenty of ability to make money long as well as short, and who 2) are currently paying attention to things like fundamentals, technicals, and sentiment, none of which are exactly flashing happy shiny signals right now.
And as for the recession being guaranteed over, that’s a mighty big call from a top down perspective, unless you want to argue that the next “gray swan” to hit — Europe, China, housing, return of the bond vigilantes, mortgages redux, and so on — will count as a new recession rather than an extension of the old one.
Again, will be fun to see how this post looks in 180 days. Making a note on my gmail calendar…
November 23rd, 2010 at 11:37 am
p.s. ‘scuse me, zombie bears (not perma)
November 23rd, 2010 at 11:38 am
What the hell is ‘fum’?
November 23rd, 2010 at 11:41 am
BR if I have to point out a person who “interprets” the data to fit his thinking that will have to be you. Now if the recession is over and recovery is here why is:
1) The FED went into QE2?
2) Home sales still in the crapper?
3) Unemployment at %10
4) Ex-inventories we had a 1.2% GDP
5) California still broke
6) Interest rates still at ZIRP
Now you make your living in the stock market and from your perspective “your” worst is over but for the bast majority is not. And yes regular people will go out a shop in droves this season but will the keep on shopping after the season is over?
~~~
BR: 1) QE2 is a response to credit collapses taking 10 years to heal;
2) Home sales are no longer falling at 10-15% per year;
3) Unemployment is 9.6%, down from 12%
4) Ex-Strikeouts I was a 400 hitter
5) Most states are broke
6) See #1
I understand that this is a sub-par recovery, Fed/Treasury driven, with only very modest organic growth. But recognizing the difference between a recession and a modest recovery is a skill set many people seem to be lacking . . .
November 23rd, 2010 at 11:42 am
The thing is, valuations never really got that low. If you look at P/Es using the 10-year averaged earnings, even at the bottom in spring of 2009, we only barely broke the 100-year average P/E. Clearly the market has regained it’s historically very high valuation, but it was never obvious that valuations had reached doom-and-despair lows.
~~~
BR: Who said ANYTHING about valuations? That is a stock market issue. THIS post is about the economy.
November 23rd, 2010 at 11:47 am
[...] Seriously people, the recession is over. (Big Picture) [...]
November 23rd, 2010 at 11:52 am
The buy now, pay never, economy is back on its feet! I keep telling people that weee’re baaack. Over half the time, I get ‘negative feedback’. But yes, all that’s left are the after shocks.
November 23rd, 2010 at 11:53 am
BR writes:
Hey! That’s not that far out of line for what some of us previously calculated for 2010Q3′s GDP. Twice even!
That said, if that higher value holds, 2010Q4 will still be a tad slower, around 2.0%….
November 23rd, 2010 at 11:53 am
Of course, technically speaking, the recession did indeed end, and we’ve been in recovery for nearly 17 months now. But for the key statistics, the ones that form the “base” of our economy, the present has changed very little. We still have nagging unemployment, we still have unsustainably low interest rates, and we still have cost of living pressures via commodity prices. These are things that cannot be present for a prolonged strengthening of our economy.
I realize the terms “bull” and “bear” refer mainly to the stock markets. In THAT world, it’s business as usual. P/E multiples, yields, dividends, et al, are all shaping up nicely for the investor.
But being a bear on the market (which I am not) is quite different than being a bear on the economy. We have eroded our base, and we are witnessing a seminal moment over the next few years, as the retirement, deleveraging, and ultimately, the death, of the baby boom generation plays out. This makes my long term outlook for the economy much more hazy than the gambling room that Wall Street is.
November 23rd, 2010 at 11:56 am
I think a distinction needs to be made between people who think the market is currently over-bought and those that think the S&P is falling to 400.
The post sets up to criticize those bears who believe in the absolute destruction of the market, but seems to end with a prod at anyone who is currently bearish.
With regards to some fundamentals, we’re currently priced around late 2004 levels (not adjusting for inflation), when the GDP was growing at 3%+ and unemployment at 5.5% – not to mention the lack of Eurozone fears and banking debacles.
I think you can be a bear in this current market without falling into the zombie bear category.
November 23rd, 2010 at 11:58 am
These are definitely hard times for most, “recession” or not.
And as far as market values go, don’t get complacent. The retirement of the Baby Boom will put enormous downward pressure on asset prices for quite a while.
November 23rd, 2010 at 11:59 am
BR, 5 stars for you.
My thinking is also reorienting. My lizard brain was agonizing about buying in at the wrong time a couple of weeks ago while my thinking brain knows this is the beginning of an economic recovery and the market is just noise at this time. Buy and hold is the appropriate prescription until the next economic collapse. Healthy markets have both good news and bad at both the same time. Unhealthy markets rise on continual bad news. This is the beginning of a healthy market that is loaded with scary stories at this time.
S&P 1200 should run to S&P 1400 and beyond soon enough. Europe is faced with financial problems, not wealth problems. Finance = paper. Wealth = people, services, and production. Finance is a concept. Wealth is an end result of things that are real. Concepts are only ideas that everyone agrees upon. Soon enough, Europe will decide that everything is OK because all it will take to fix Europe is a new conceptual mashup regarding debt and accountability. China and India are the next growth areas and will remain there for many years.
Last night I remembered long ago when I just put money away and forgot about it. I remember a standing joke that whenever I put cash in, the market was almost sure do go down and my next statements would show it. This happened a lot of the time but overall my account balance rose appreciably and surprisingly. In fact, buying Quicken probably contributed to my market anxiety because I had the means to see an accurate accounting on demand of what I used to happily and affluently ignore. Instant punditry on the Internet hasn’t helped my attitude, either.
I’m going to return to a compromise position where I stay tuned to current events but ignore the market and my balances unless WW III or something similar erupts. I have confidence in the economy and the future. Later, I’ll probably put in my remaining cash. That being said, June 2011 is a point to take heed when QE2 runs dry. I may consider a little market timing if things look a little extended.
November 23rd, 2010 at 12:00 pm
“The depression has ended.” – Dr. Julius Klein, Assistant Secretary of Commerce.
June 9, 1931
How did that work out?
November 23rd, 2010 at 12:03 pm
DH – Good luck with that trade buddy! Cheers to you for sharing it with us too! :-)
Agree with this whole heartedly;
Instant punditry on the Internet hasn’t helped my attitude, either.
Truer words have seldom been said.
November 23rd, 2010 at 12:03 pm
The pessimism extends from the fact that Joe6Pk has taken it (and continues to do so) in the shorts. A lot of Joe 6Pk are your blog comments posters. They are Bearish because their personal position makes them so. Businesses are recovering because they laid off Joe6pk and half his work buddies last year, and who know are familar with the term ’99′er’. Their balance sheets are more reflective of current reality now, so they have ‘recovered’ by streamlining their variable costs structures. The banks are happy because they successfully took their credit and debt risk and were able to have Uncle Sucker transmogrify it into sovereign debt risk and take it off their balance sheets. Witness the Euro banks attempting to do the same thing to the Irish taxpayers in this latest effort to bend the light waves of reality. And on the news of the deal that Irish taxpayers are being saddled with an untenable burden, the market and MSNBC pundits react with a collective “Yaaay for us! Buy buy buy!!”
This is a long winded way of saying the recession is over for Walll St and big business, but it trudges on for the consumer who is saddled with lower wages and higher essential commodity costs. The market is getting better as global wage arbitrage and outsourcing continues to erode wages as a cost component, I’m not quite as convinced the economy is, with respect to the health of business and industry located within the US.
Bears still have a valid voice IMO. Time will tell if the Federal and State debt overhangs will whipsaw back onto the economy. Seriously, who the hell is buying LA Muni bonds? If you have money to trade (and feel like taking on the HFT servers), there is money to be made in the market at the moment. Suffice it to say, personally speaking as a guy trying to eek out a living and support a family, I no longer have the discretionary income to trade in the market. Hats off to those who do and are succesful at it.
November 23rd, 2010 at 12:04 pm
Maybe some of us are more skeptical than the average bear if not smarter. I cannot help but wonder how much of the recovery measures (like the index of leading indicators) are confusing inflation with recovery. The components of the Index that contributed most to it;s current jump are all related to inflation of the money supply and devaluation of the dollar. Furthermore, how much of the export gain is devaluation of the dollar and therefore temporary? Another concern is unemployment for two reasons: 1) if we have a measure and positive events continue to not affect it, then shouldn’t we admit we’ve been grossly under counting all along, i.e. unemployment was 18% not 9% and is till probably 15% and 2) UPS is hiring 30,000, Kohl’s 40,000, Macy’s 30,000for the Nov-Dec period–that’s most of the job gains right there and doesn’t include most retailers or other seasonal employers. the continuing drops in home sales runs counter to the improving economy and I tend to believe raw facts rather than aggregate fictional models subject to manipulation. I also think the fed is going to lose control of QE2 and the USA’s deliberate devaluation of the dollar will provide only temporary relief–the G19 will counter it and render it ineffective soon enough. This bear might not be howling, but he’s still growling under his breath. It ain’t over ’til it’s over. And it ain’t.
November 23rd, 2010 at 12:10 pm
now BR is an “out of the closet” bull-
I wonder how those agents and brokers felt in 2005- tripping over money as they were- times couldn’t have looked better
and stops? please! You need to double down- because you obviously have it all figured out
~~~
BR: I am not an out of the closet Bull (after today’s stops, we are 50% long. We have not been all in since December 2009). This post is about the people who refuse to acknowledge any improvement in the economy whatsoever.
November 23rd, 2010 at 12:14 pm
Barry
you among the elite of non permabears who called the last one. highest credibity
still not clear to me we are ramping up sustainable recovery in US or europe.
finance here is still so broken the natural recovery cycle being stalled.
and only offset by massive unprecedented govt guaranteeing everything,
and monetary and fiscal
andthe later may shut down for the US in a month if congress doesnt act.
As for guilt about shortselling and bearish at right time, i recommend a dose of Michael Lewis?
Or consider it protecting yourself and family from a not in control system.
November 23rd, 2010 at 12:15 pm
What does GDP have to do with the fact that, a shadow banking system once equipped with an infinite multiplier is as dead as Elvis? Gone is ability to further leverage a shrunken physical economy whose incapacity to service outstanding claims brought us to the point of crisis in the first place. That two-point-whatever GDP number cannot possibly save the low man on the capital structure totem pole: equity. There will be no revival of confidence in anything remotely resembling those securities-based schemes responsible for adding leverage upon a shrunken physical economy whose investment deficit is legendary. This is key. Everything attempted thus far to revive the securitization game has failed, and so collapse proceeds at the periphery on accelerated course leading right to the core, which is here in the U.S. Sure, the global arrangement in which we find ourselves allows for moments like now when appearances can deceive. Yet weak, over-leveraged hands bolstering the stock market (including the lilliputian Fed) cannot possibly sustain these appearances given the physical economy’s investment deficit. A huge mass of mispriced risk wagered on schemes with little hope of proving viable invariably will become crushing.
November 23rd, 2010 at 12:17 pm
Michael Lewis on ethics of short selling
CHARLIE ROSE: That’s right, because they (short sellers) were betting against people.
MICHAEL LEWIS That seems to me so beside the point. And I tell you
why. The first is that — the first reason it’s besides the point is that if everybody thought the way these people thought, none of this would have ever happened.
Second, they tried to warn people. In one case they went to the SEC
and tried to get the SEC to do something before they had their massive bets going.
And finally they were — the financial system really only works if there is one incentive to get bad information, negative information into it. And that’s what the short — that’s what shorting does. It creates an incentive for negative information to get into the financial markets.
And, two, if the people who are right are rewarded for being right, and it’s this shrewdness and rightness of judgment and seeking of truth pays. And these people did that. I agree that there’s a kind of taint to what they do. People don’t like short sellers.
CHARLIE They don’t like them because in some cases they believe that they manipulate by creating rumors and then people –
MICHAEL But in this case it’s very clear they did not do that. So that may be true in other cases, but in this case they did not do that. So it’s a — It’s funny to me when someone jumps to that to wanting to make that ethical judgment. I leave that open, actually, for someone to do. But for someone to jump to that ethical judgment because there is so much more of an obvious ethical judgment to be made about the people who got rich creating the travesty, creating the problem.
November 23rd, 2010 at 12:27 pm
When the recovery begins, almost all stats and situations are still bad… that’s the hard part to get around in your thinking.
November 23rd, 2010 at 12:31 pm
ANYONE WHO THINKS THE RECESSION IS OVER IS CERTIFIABLE. I have repeated told you I am an analyst with an international trading (import/export) house. TRADE IS NOT MOVING. If you want to beleive the government produced figures or your trips to the local malls on the NORTH SHORE of Long Island, you go right ahead. I have access to international trading logs, shipping logs, and our number one trader (import/export) is China. We have plenty of verifaible (proprietary) data from inside China that their markets are frozen and have been for some time. So if you all want to believe this go ahead. Like I repeatedly say, this sight is full of Polyanna cheer leaders. I stand by my call….some time in the distant future when REAL economists look back on this period, they will label the second DEPRESSION as starting in January 2009 and ending sometime in 2013-2014.
November 23rd, 2010 at 12:31 pm
Boy do you love to toot your own horn. It’s very unbecoming.
~~~
BR: You think THIS post is tooting one’s own horn? How . . . cute.
November 23rd, 2010 at 12:33 pm
The fund sting just got a little wider. How far down the rat hole will they go? Me-thinks not too far because what they’d likely find is an entire industry rife with criminality and fraud, but then again, most of us know that already.
http://www.zerohedge.com/article/598-billion-wellington-management-busted
November 23rd, 2010 at 12:33 pm
I am not a trader, I do no longer claim to be one ( I was in the late 1990′s and early 2000′s). I look at the Economy for what it is….NOT AN EXTENSION OF AN ECONOMY. The market can go higher in the worst of times. Get that through your heads and relize that the ECONOMY still sucks. If not, I can find a couple of million unemployed people who can verify that.
November 23rd, 2010 at 12:41 pm
Agree, we are technically out of the recession and are growing slowly but that does not mean the equity markets are at valuations that will results in suitable longer term returns. Valuation matter first and foremost.
November 23rd, 2010 at 12:46 pm
Glad BR finally caught on but Bernanke doesn’t totally agree. For extremely good thinking and economic harbingers I suggest you follow Mark Perry at Carpe Diem http://mjperry.blogspot.com/. Easy to read graphs, solid thinking.
November 23rd, 2010 at 12:46 pm
The problem this post shows is that people are either unable or unwilling to distinguish the real economy from the fake economy. The fake economy, based on bailouts, stimulus, free money, government guarantees, and fraudulent accounting, is doing just great. The real economy, not so much.
Real economies are sustainable, fake economies are not. Investing in a real economy is true investing–investing in a fake economy is speculating.
November 23rd, 2010 at 1:03 pm
BR: Does that mean you oppose further fiscal stimulus? Should the FED commence tightening asap? If your answer is yes, I’d be more inclined to believe that you are not just having a little fun with the bear crowd. Nothing wrong with that, BTW. We tend to be rather too self-righteous for our own good! Posts like yours are helpful in forcing us to self-administer a reality test. My test results came back as “inconclusive and terrified.”
November 23rd, 2010 at 1:05 pm
And just what % of that new found GDP growth is GOVERNMENT spending. Will the governement continue to spend liek that in perpetuity? I sure as hell hope not. We can not afford to continue to paper over the mistakes. For all you Keynsians out there…are you not disturbed that TRUE Keynsian philosophies have been so thoroughly distorted? Yeah, I agree he was in favor of GOVERNMENTS spending their way out of serious recessions…BUT, he was also in favor of it being VERY TEMPORARY and MAINTAINING LARGE SURPLUSES DURING DOWN TIMES. NEITHER of which we are currently doing. So distorting his philosophy and using it as an end all to SAVE ALL is just ridiculous.
November 23rd, 2010 at 1:16 pm
BR lamented:
Even after all this, these reflexive Bears refuse to flip. They will not admit the economy is getting better, albeit slowly. They insist the recession was a depression; they insist it never ended. These are the bears who cannot be killed. They will stay bearish, regardless of the data that all but insists otherwise.
These are the Zombie Bears . . . they cannot be killed.
reply:
———–
No, man. This is the wall of worry yet to be climbed. Think of it as a deferred asset.
November 23rd, 2010 at 1:19 pm
Let’s look at the healthy economy checklist, shall we?
ZIRP…um, maybe not
Fannie and Freddie own all the houses….hmmm, possibly not either
59% of people polled would not own stock or a car from Government Motors…better hold that, too
JP Morgan says that the lowest 20% of the US population will spend 58% of income on food and energy..nope
small business month after month: biggest problem is not enough customers…suppose can’t check this either
payroll taxes rising…I believe the number for next year is 42 states so far…yawn…
poll of older people show many don’t ever plan to pay off debt..sounds healthy to me
etc…………….
maybe I belong to the skeptical group, if I can no longer have a bearish outlook…
November 23rd, 2010 at 1:27 pm
My question is, on what basis do we measure the end of the recession and growth going forward? Define the terms, and you get your answer. Yes, some sectors are back on paper. But it is, from my point of view, just paper.
I am not a trader – and I’m fundamentally risk averse. But my observation is that no economy with 20% unemployment and ZIRP punishing savers is going anywhere real. I am fundamentally disinterested in where we fit along an imaginary line comparing this year’s growth with last year’s – I’m more concerned about where the economy is going in a macro sense. And what I see is very negative: political instability; no policy or public agreement on the direction that things need to go; very, very little productive value in what makes up GDP here; glaring infrastructure problems, but no money or will to fix or improve those sectors; a massive vacuum of leadership in both the public and private spheres. On what will real, productive output will growth be based in future?
November 23rd, 2010 at 1:30 pm
BR: you said…Meanwhile GDP was revised to 2.5% (more than previously calculated) on increased exports boosted domestic spending.
HA HA…that’s funny. MOST OF THAT was inventory build. Here from their own report…
“The change in real private inventories added 1.30 percentage points to the third-quarter change in real GDP, after adding 0.82 percentage point to the second-quarter change. Private businesses increased inventories $111.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and of $44.1 billion in the first.”
November 23rd, 2010 at 1:30 pm
To paraphrae another clueless permabull…there is always a bear market somewhere. Lets not confuse the stock market with the economy as so many are wont to do. Two separate entities entirely.
November 23rd, 2010 at 1:32 pm
Barry, I saw this newspoint and thought of your post about whether Obama was hit by the same economy that battered Bush Senior – an improving economy that he got no credit for.
The other thing I wondered was how long it would be before someone would say “See, the Republicans got elected and the economy is getting better *already*!”
Enjoy your Thanksgiving!
November 23rd, 2010 at 1:44 pm
I wanted to add that increasingly it seems that the economy is getting disconnected from the welfare of ordinary americans. Of course, the labor market’s fortunes tend to lag overall production, but I think we are used to thinking that “if the economy is growing, things are good for the ordinary american.” It’s the old “What’s good for GM is good for America” thinking (ironically seemed to be true last week). But the massive increase in inequality is making it increasingly possible for the economy to grow as millions continue struggle to get by, and I fear with diminished chances of getting picked up by the recovery.
From an investment point of view, both data points are relevant for what types of companies are likely to see steady or growing profit streams. The zombie bears (and there are presumably some in every recession) may be thinking there can’t be a recession if the labor market is still hurting like this. But the big worry is that it can, and more importantly, it can continue like this.
I also worry that fiscal contraction under the Republicans may tip us back into a double dip, particularly if China puts the brakes on to fight their own inflation at the same time.
November 23rd, 2010 at 1:47 pm
Here is another thought to bake your noodle over:
Even if the recession IS technically over (in GDP terms), does that mean stocks are a buy? One can easily make the case for a loud and resounding “no.” Consider:
– If the recession is truly over, then Fed stimulus should be slowly and steadily withdrawn.
– At the same time, a true “recession over” means U.S. interest rates should begin to rise (as they already are at the longer end of the curve, in direct contradiction of the Fed’s QE2 plan).
– And yet, how strange is this, corporate earnings were hitting record recovery levels well before this “recession over” meme began… which suggests that, if the U.S. economy puts together a SLUGGISH recovery, as opposed to a zippy and robust one, it would not be at all unrealistic to expect corporate earnings to FALL… even in an acknowledged corporate environment.
Thus given the above, it is wholly possible to paint a “weak recovery” scenario in which the withdrawal of artificial stimulus, coupled with slowly rising rates, is enough to compress inflated stock multiples even as things get better at just enough of an acceptable pace to stay the Fed’s politically constrained hand.
So when you tally up, we’ve got the “recovery gets smashed by a gray swan” scenario… the “recovery is here but withdrawal of stimulus means stock multiples get compressed” scenario… the “recovery already priced in so it doesn’t matter that it’s here” scenario… and many others.
Bottom line: Those taking a buy and hold view of any kind may well be smoking plastic at this point. Do you really think you have a handle on the sovereign / top down risks embedded in this market? Do you really think you understand the interplay of paper economy and real economy with such a high degree of confidence and precision that you can be absolutely sanguine about what happens next?
In this humble trader’s opinion, those of you who think you know what will be happening X quarters down the road from now — and who have taken a relaxed view because your wishful thinking tells you so — are taking some monster risks to say the least. QE2 is going to be market supportive for the next few quarters? Really? How in the world do you divine that? Especially when, based on signals from the bond market and Washington, QE effects are flagging already with the cavalry in doubt?
The more I am exposed to long-term predictions that take little to no account of the swirling sea of variables, the more content I am to be a trader who makes his daily bread by approaching the market as an odds game. I don’t know, you don’t know, they don’t know, nobody knows… but I can give you one hell of an odds and probability based argument as to why current conditions do NOT favor complacency here.
November 23rd, 2010 at 1:48 pm
acknowledged ‘recovery’ environment (sorry, typing 90 wpm here)
November 23rd, 2010 at 1:49 pm
@Bruman:
“I also worry that fiscal contraction under the Republicans may tip us back into a double dip, particularly if China puts the brakes on to fight their own inflation at the same time.”
Well, the fiscal expansion of the PIIGS would seem to let everyone get involved. That would include grandchildren and great-grandchildren, as the Irish have discovered this week. We can’t all love Krugman…or his ideas.
November 23rd, 2010 at 1:53 pm
Stock market performance (bull or bear) over short time horizons sometimes has correlation with aggregate economic performance, and sometimes doesn’t. I’m a short-term stock-market bull, or was, because of QEII. Now I’m beginning to wonder if the Fed’s self-imposed limit of $600b is enough to move the needle.
I am a zombie bear for the economy overall, and I don’t really give a damn about this or that particular quarter’s performance, if for no other reason than math. A 2.5% rise from a depressed condition ain’t much. We still haven’t revisited the level of economic activity that we topped out at in 2007.
The US economy is structurally decrepit. It is living on the past and borrowing against the future. We rescue industries and companies that should fail, in the process stomping out any green shoots trying to emerge. We waste trillions wedded to our yesterday glories, while demographic forces are not our friends. State and local governments are insolvent. The Feds would be too, if not for the nukes and navy that give us the power to print the world’s reserve currency.
But these are uber-Big Picture views, acknowledging the sweep of history and attempting to find our fit in it. And nothing that I see on the horizon changes my view that the US, Western Europe and Japan are all in a long, slow decline, from which there will only be the occasional bounce.
November 23rd, 2010 at 1:59 pm
Sticking with the numbers can be hard work and sometimes trusting them is even harder. Semi-OT but related to this topic and the previous muni-bond topic: http://preview.tinyurl.com/2fbmjm8
“I know that facts and truth seem to be optional these days. I know that in the exciting new world of infinite media everyone can choose to believe whatever fantasies they want. But in the case of California, it’s getting on my nerves. …
You’ve probably heard a variant of the following storyline:
California is a basket case. The Greece of America. Decades of crazy liberalism and runaway spending have crippled the economy. Wealth creators are fleeing in droves. The people left are spending themselves into rack and ruin. They can’t balance their budget, once again, so they are asking the rest of us for a bailout. And they even voted for Jerry Brown, a Democrat! It’s time we said enough is enough. No bailout for California! And get out of their muni bonds while you can — they’re going to default.”
California’s a basket case? The state has one of the highest living standards in the country, yet over the past 10 years the economy has still grown much faster, per person, than the national average. According to the U.S. Bureau of Economic Analysis, it’s up 15% — compared to 8.9% for the U.S. overall.
It’s grown faster than low tax neighbors like Arizona, Utah or New Mexico. It’s grown three times faster than Texas. …
That California “bailout.” There’s no such thing.
California bails us out. It has been bailing out the rest of America since, oh, about 1849 …Californians are so productive that every year they send billions of dollars in surplus dollars to the rest of America. Year after year they have sent vastly more in federal taxes than they ever get back in federal spending.
California isn’t our Greece, it’s our Germany. It isn’t Little Orphan Annie. It’s Daddy Warbucks.”
There’s a lot more with numbers. Did I mention I was a buyer? [lol]
Parenthetically I’m also guessing Chris Whalen is wishing he’d stuck to bank analysis on this one.
November 23rd, 2010 at 2:00 pm
As a realist IZ think you have been drinking too much of Big Benny’s kool aid. This market has either topped already or will with one more push up may to 1240 S&P but there is no reason to believe we are going up to some of the lofty levels we were at in 2007. Big Benny and his QE2 will be curtailed by no other than the current and new gov’s coming on the FED board. Without QE2 this market will fall of it’s own weight as we head into 2011 and earnings don’t come in as expected and Europe starts to unravel again.
November 23rd, 2010 at 2:05 pm
These comments are intriguing. I read this blog BECAUSE of the rigorous data analysis and BECAUSE BR seems to be (IMHO) one of the more objective bloggers.
Hell, most of my neighbors are in a bear market. But there are enough data points for me (and I’ve been reading this blog long enough) to get a sense that the market and sectors of the U.S. economy are growing.
I don’t want to get stuck on the wrong side of the curve.
http://www.ritholtz.com/blog/2010/04/lagging-psychology-at-turning-points/
November 23rd, 2010 at 2:20 pm
@BR
” But recognizing the difference between a recession and a modest recovery is a skill set many people seem to be lacking . . .”
..recognizing the difference between a pause between recessions and a modest recovery is a skill set many people seem to be lacking . . .
November 23rd, 2010 at 2:22 pm
B.R.
Agree the recession ended, but how do you relate that to a market trading at 14 times next years earnings and yielding less than 2% in a sub-par growth environment that has more than a remote probability of a double dip. See Hussman(Outside the Oval / The Case Against the Fed )
November 23rd, 2010 at 2:27 pm
well said captain jack …
only point to add is that uncertainty is not the same as probability … i think i recently heard someone say that if there was no uncertainty in markets there would be no trading opportunities … but uncertainty is when you cannot allocate probabilities to states of the world … and without probabilities then you have no expectations … and portfolios with trades stacked or constructed with positive expectations are what we seek … all else is gambling and thinking you know what the future holds is pretending one isn’t gambling.
maybe gdp is positive, maybe folks are shopping but do you know what impact asian central bank monetary tightening to control inflation or european fiscal tightening will have within those markets and hence global demand? … ???
and what of the policy mix in the US next year? etc etc … lets not confuse price (inflation) with value and lets stick to discussing and allocating probabilities to states of the world which are likely (and not) and then construct portfolios to capture our bias or value.
November 23rd, 2010 at 2:31 pm
[...] Time for Zombie Bears to admit that the recession is over. (TBP) [...]
November 23rd, 2010 at 2:42 pm
On another note, am getting more and more bearish on SAC and Stevie Cohen by the day. LOL.
http://www.zerohedge.com/article/sac-discloses-government-subpoena
November 23rd, 2010 at 2:44 pm
“The long hours of research put into identifying the variant perspective was a lonely path. There were no guarantees it would be correct. Worse still, it took a long time — years — to pay off professionally. I ate a lot of crow, and was mercilessly tortured by eejits over what I knew was a giant debacle in the making.”
Somehow you could see the housing bubble for what it was, and you were OK risking your professional reputation, and waiting for that long awaited payout, despite what the market was telling you (it’s time to party while the music plays!). You apparently chose to be right rather than make money. For some reason you chose to look the other way when it comes to the Government debt bubble.
It’s not that bears refuse to look at the data; it’s just that the data says the debt bubble is growing worse every day. You think the bears will change their minds because they are being mercilessly tortured by eejits over something they know is a giant debacle in the making?
To date the S&P rally has retraced a classic fib 61.8%, totally expected in the context of a bear market rally. It took a lot of deficit spending, Fed steroids, and a falling dollar to even get it there. Can one speculate that an overbought, overbullish and overextended market can go still further? Of course, that’s what ‘the greater fool’ exists for.
November 23rd, 2010 at 2:48 pm
When you disagree with the permabears, its not that they are wrong, missed a generational rally, and are otherwise incorrect in all of their assessments. No, its really that:
1) growth is artificial
2) you were seduced by Wall ST
3) the economy is still bad.
4) The Fed! POMO!
5) Tsk tsk . . you once held such promise.
Keep ignoring the idiot children.
You are money in my shop.
November 23rd, 2010 at 3:06 pm
How is it a recovery if we just found out there are no Mortgages in most (96%) Mortgage Backed Securities?
http://m.dailykos.com/stories/2010/11/22/922447/-.html
Oh, that and the threat of the “illegality” of many Mortgages that were robosigned
http://tinyurl.com/33n6rgl
I guess FBI investigations of Hedge Funds don’t include the Ritholtz holdings, so Barry can continue to trade,
while the Janus Fund and SAC Capital are halted by the FBI for investigation according to Business Insider.
I guess Barry wasn’t as serious about upholding the letter of the law as I thought, otherwise, he’d see that the frauds will sink this “recovery” he’s feeling.
November 23rd, 2010 at 3:13 pm
Boys,
Let’s look at the FACTS:
Historically the bias of the market has been up. You are fighting the trend most of the time. That doesn’t mean you can’t save boat loads of money by identifying inflection points, but there is nothing in the U.S. data flow that indicates this.
GDP is positive. ISM is positive. Interest rates are low. Corporate profits rising. Bank Stress indicators in the U.S. are nil.
In Europe: GDP is flat, ISM is flat. Corporate profits are decent due to global exposure, bank stress indicators are elevated. If there is a bubble, it’s more likely in Europe versus America.
Now you can make an argument that all the problems in Europe will spillover and the U.S. will crash, etc.
But subprime began to crack in 2006 and it took a full 18 months for Bear Stearns to fail and for the gains of the 2007 to be wiped out, let alone 2006. And this by the way was 6 months after the intitial spike in Libor in the U.S.
By then the problems were way obvious.
Think about optionality here, how much you have to lose if the European situation is sucessfully kicked down the road even for a year or two. The market could easily go up 12% by Apr 2011.
Yes, we are doomed in the long run. But the long run can be a lot further and a lot higher than what anyone can envision. And you have to at least have a little evidence that things are meaningfully turning, there is absolutely none at this point.
November 23rd, 2010 at 3:13 pm
“Glad BR finally caught on but Bernanke doesn’t totally agree. ”
Helicopter Ben isn’t engaging in QE2 for recession fighting–it’s for two reasons: 1) to supply cheap devalued cash to the precariously teetering US banks who would rather have devalued money to trade and cover up for losses than turn their loans portfolios from mark-to-make-believe to mark-to-market (inflation favors debtors and insolvent creditors both– B of A is a prime example–they might not even be solvent right now) and 2) inflation boosts economic indicators, exports (and export valuations in dollars), boosts the prices of cheaper US stocks–yet by eliminating more and more pesky inflating items from the CPI (like housing, food, and energy), we can pretend it’s not inflation but recovery. I am not buying it at all.
November 23rd, 2010 at 3:27 pm
BR, I think you only make posts like this to create a huge comments list. I’m not even gonna bite.
November 23rd, 2010 at 3:32 pm
@crunched: I get the feeling that he is baiting the bears, too.
November 23rd, 2010 at 3:48 pm
BR – Your broken record is now at odds with a proven record. We’ll see who gets the chair when the music stops. :)
http://www.grandich.com/2010/11/grandich-calls-market-top/
http://californianewswire.com/2010/11/22/CNW8257_174123.php
p.s. To clarify, I’m not disagreeing with the premise that the technical aspect of the great recession is over, fudged government data aside. I simply see it from a different perspective – one that looks forward, not in the rearview. This time it IS different…
~~~
BR: What broken record are you referring to? I have been bullish and bearish 8X over the past 3 years
November 23rd, 2010 at 3:53 pm
i do agree recession over, as economists technically definne it
the hard times aint over
and what we have is what we used to call a “growth recession” less than capacity growth
November 23rd, 2010 at 3:58 pm
I am a bear.
November 23rd, 2010 at 3:59 pm
macroEconomist said: “GDP is positive. ISM is positive. Interest rates are low. Corporate profits rising. Bank Stress indicators in the U.S. are nil.
In Europe: GDP is flat, ISM is flat. Corporate profits are decent due to global exposure, bank stress indicators are elevated. If there is a bubble, it’s more likely in Europe versus America.”
GDP might be positive, but it is disgusting being manipulated by GOVERNMENT spending. WHAT THE HELL IS HEALTHY about that??? They are pulling it along like it was for the last generation. They are still not admitting they have stolen from the future. They are attempting to make up for all of that…..and all they are doing is making the can that much bigger. Since you cannot collectively grom the foot that kicks it…eveentually you can’t kick it any further.
Interest rates aren’t low they are ZERO…that is death for the savers in this country. Who spends???? thsoe who have money. If you continue to steal from them how do you survive? Oh yearh…keep blowing bubbles and keep feeding the banks. Damn you are ignorant to believe low interest rates are a positive thing here…except for the banks…and over a long enough period this wil lHURT THEIR BALANCE SHEETS TOO…. why? because cash flow always catches up….you can’t manipulate the cash flow…
Bnk strss nidcators….nil??? you are joking right??? Why must we measure all risks quantitatively? Have you read anything about Fraudclosure? Man, most of these banks are technically insolvent and they have no one to blame but themselves. The Government is allowing fraudulant accounting to continue unabated. And you see this as a postive? Just wait til they either have to buy back those loans or start wrting them off. I can’t wait to watch the carnage on that one.
Bubble more likely in europs…TRY CHINA my friend. I read repors all day long that come frominside that country. No one has any idea how fried their economy truly is. We have goods sitting in warehouses over there that has not moved in months. We can;t find any buyers any where in the world for it right now. GDP recently was marked up in Q3 thanks to inventory building. How do you think that bodes for China….. Inflation there is killing what ever domestic market they have… And as you watch the EU and the emerging markets slowly fade….they will be stuck with that much more.
November 23rd, 2010 at 4:01 pm
Good news? I’m glad, but I’ll take it figuratively speaking. Psychologically speaking, it’s going to take substantial positive good news to wipe out the huge, glaring WSJ headlines of 2008. (I’m a former cash manager who has worked for industry. I shudder to wonder how close the US came to a run on the banks.)
I’m fine with seeing an economic recovery, but there will be a lot of adjectives attached to it (sub-par, tempered, bifurcated, etc.). Anything but robust for the near term. I think the economy has some adjustments to make yet.
@ curbyourrisk 12:33 Amen
@ Enm 12:46 well put
November 23rd, 2010 at 4:05 pm
@ B.R.
You said:”BR: 1) QE2 is a response to credit collapses taking 10 years to heal;
2) Home sales are no longer falling at 10-15% per year;
3) Unemployment is 9.6%, down from 12%
4) Ex-Strikeouts I was a 400 hitter
5) Most states are broke
6) See #1″
AND THIS IS REASON FOR YOU SAYING A RECESSION IS OVER????
1) QE2 is a feeble attempt to continue forcing prices higher…..We do not live in a world where you can borrow and spend your way out of papeer bag, let alone a recession (depression)
2) Bad home sales are still Bad….so we are not decling at the same rate…..big deal
3)What about all those that fall off the roll week after week that are no longer being counted. Tell me soemthing…where does U6 stand right now??? You might not get it, but those people are not spending on high priced ticket items…they have no credit AND THEY NEED TO BUY FOOD AND ENERGY AND SHELTER. None of which they can afford thanks to things like QE and QE2 and their affect on rising commodity prices.
4)3 strike outs end an innning. 1 .400 hitter in a lineup does not gaurantee a win.
5)NOT MOST STATES ARE BROKE, VERY FEW STATES ARE NOT BROKE…..that’s what that should say.
6) See #1.
November 23rd, 2010 at 4:23 pm
All I read is the mid2011-2012-2013 sidelines cash will be impressive, providing some new bubble doesn’t burst beforehand. This is a bottom of a different color.
November 23rd, 2010 at 4:25 pm
There is no limit to how long the current equilibrium may be maintained. I would say an economy at or near peak debt and zirp is a stable situation. The peak debt is maintained by ensuring zero nominal and slighly negative real rates and hyperniflation is prevented precisely because the economy is always at peak debt.
Look at japan. Its perfectly doable.
In fact peak debt and zirp is the only possible equilibrium solution for a fiat economy.
November 23rd, 2010 at 4:44 pm
OK, so the recession is over … but what do you call it when huge chunks of the economy are dysfunctional, the banks are living a lie, and institutions from individuals to corporations to nations are having to face the threat of insolvency on a daily basis?
We’re looking at housing returning to normalcy in what, 3, 5, 10 years? And employment? I suspect we are not going to see a single-digit U6 number before sometime in the 2020′s.
Surely that’s not “recovery”. Where’s the growth? Where’s the monetary velocity that comes from a healthy economy pumping money through its veins? Methinks, BR, that thou hast been blinded by the bright lights on Wall Street.
~~~
BR: History tells us this is what post credit crisis recoveries look like. I expect most people will obsess backwards, and miss the recovery.
November 23rd, 2010 at 4:53 pm
Parenthetically I’m also guessing Chris Whalen is wishing he’d stuck to bank analysis on this one.
wow- one rebuttal from a writer at Marketwatch and Chris Whalen is (all of a sudden) a hack
November 23rd, 2010 at 5:32 pm
It’s an interesting question — what constitutes a “recovery”? Sure, we can fall back and point to the referee’s call on the end of the recession, but that’s a lot like the difference between the letter and the spirit of the law.
Where possible, we ought to aim to satisfy the spirit, and as we are all judges in this informal forum, no one should be pointing to the official verdict here.
Let’s step back a moment, and compare the current situation to the period between the double-dips of the early 1980s. Unemployment had not really begun to heal, and the economy still had a heckuva lotta stuff wrong with it. Was the economy really in recovery then? Or just waiting for Act 2?
Or how about the period between 1934 and 1937? The banks had all been repaired, so in that regard they were a couple of steps ahead of us today. But employment then was just as it is now, insufficient to the need; and housing was also still on IV fluids in the ER, but not as punk as we are today. In many ways we are worse off right now than the nation was between 1934 and 1937. In other ways, not so much. But comparable, I think.
And yet the history books tell us that the Great Depression ran from the Crash of ’29 all the way to the start of WWII, when the economy was basically nationalized.
So what do we call what we have today?
And what is likely to change things, in the absence of any significant structural reforms? We certainly don’t need another war — we’ve got wars coming out of our ears.
I think it’s that “reform” part that is missing, and it looks like the pols are gonna hafta be looking at the extinction of the Bananamerican nation before they will summon the courage for reform, and perhaps not even then. They are still getting paid, just like the Wall Street folks, so there’s not a lotta urgency for them.
No problems in their field of vision.
November 23rd, 2010 at 5:45 pm
BTW, while I am bearishly inclined, I am also nearly fully invested. I think that this charade will go on longer than anyone believes possible. But it’s still a charade.
November 23rd, 2010 at 5:50 pm
What happened to this blog? Did all the Zero Hedge loons overrun the place?
Ask yourself this: What is the path of the greatest surprise — to the downside or the upside?
November 23rd, 2010 at 6:28 pm
So a question about stops and risk management – given your bullish forecast, mostly invested position, but the market has moved down and “As I write this, the market is off 1.5%, and some of our long positions will soon hit our sell discipline (We will stop ourselves out).” –
What’s next? Assuming you do get stopped out, are you out of that position for good? Do you reassess immediately, one week later, one month? Hope to buy the same position at a lower price? If the market rebounds before you redeploy your cash do you buy the same position at the higher price?
November 23rd, 2010 at 6:47 pm
Fed poured 2+ Trillions plus Trillions of guarantee for Zombie Banks, ZRP, QE1+2 etc, and of course, NO WONDER the GDP got pushed up but JUST only 2.5%! Let’s not forget the revision down the road!
Is this an ‘organic recovery’ or fake one with pumped up with Ben-dollars. we will know for sure, this time next year!
With market to Fantasy in operative, every one his uncle is declaring profits!
This, FOR SURE is NOT an Economy based on ‘Free market’ rules!
But again as BR has quipped many times : Do you want to make money or want to be right!?
November 23rd, 2010 at 7:20 pm
You guys actually sound like Cleveland fans the night LeBron left. Like BR betrayed this shared thing you’d gotten accustomed to for the last 3 years. Its all very sad for the bears (and hilarious for me)
November 23rd, 2010 at 7:37 pm
Barry: Did you sell anything today?
November 23rd, 2010 at 7:44 pm
A few stops got hit
November 23rd, 2010 at 8:03 pm
QUESTION : How to get 1.25% GDP Growth on a 13 trillion dollar economy?
ANSWER : Spend $3trillon
The Debt to GDP ratio suggest that the GDP USA created was NOT worth the load up on debt.
USA is just a teenager with a new credit card !
November 23rd, 2010 at 9:18 pm
Be careful not to overlook at least a few things suggesting that the possibility of a double dip is not dead yet.
Current commodities speculation will drive up prices of things people need and slow down the economy, but it will also mask deflation ensuring that the policy response to deflation will be underpowered. The housing bubble masked the fact that we had no real economic growth during the Bush years. Similarly the commodities bubble is masking deflation. When the commodities bubble bursts we could instantly be faced with severe deflation – and all the bad consequences of deflation for a country with combined debts of 350% GDP. Remember the Fed is pretty defenseless against deflation so only congress could tackle that (yeah, fat chance).
The political climate is driving us straight into a policy of cutting public employment and spending to the bone. California is a prime example of what damage that kind of stupidity can do to employment and the economy.
The only thing that can really give us growth is to redistribute income and wealth from the rich to the consumer class, and that has about a snowballs chance in hell of happening in the current congress. The same thing with effective pro-inflation policies such as hiking the minimum wage by 2-3 dollars. So I don’t see where on earth we will find anything that could grow the economy sufficiently to create self-sustaining growth. The rentier class of Wall Street is about to suffocate the economy and themselves with their own greed.
However, the Dow may set a new record next year. With all that cash amassed by corporations and no growth to invest it in, what else can they do except to purchase their own and competitors stocks.
November 23rd, 2010 at 10:13 pm
BR said: What broken record are you referring to? I have been bullish and bearish 8X over the past 3 years
Sorry, facetious faux-pas: I meant the broken record of playing “the recession is over” song, not anything about your investing/sentiment record. I appreciate your methods and perspective – that’s why I read you every day!
So — bull or bear? Think Grandich is right?
November 23rd, 2010 at 10:37 pm
Dont know yet
I always find its easier to pick a bottom than a top —
But empirically, we are not showing the conditions that make us comfortable saying this is anything more than a correction yet.
November 23rd, 2010 at 10:47 pm
To some degree, this entire thread reminds me of a semi-apocryphal story about Soros and the yen.
To paraphrase: A trader (I forget the original source of this) is debating whether or not to be long yen, and he gets hold of Soros who is very bullish. In a compact conversation Soros gives him all the reason why the yen will remain strong, why it is sure to keep going up, etc. etc.
The trader goes long yen but very tentatively, and a small move stops him out. He checks the currency markets two weeks later and the yen is in free-fall — plummeting like a stone. Worried about Soros and his long positions, he gets hold of the palindrome and says, “How are you doing, are you okay? The yen looks very ugly right now…”
To which Soros replies, “Oh yes, it’s wonderful! We’re short and making a killing.”
Morals of the story:
– Trading is about making money, a different biz than making public market calls
– Consistency is not always a virtue in dynamic and fluid situations
– The market is going to do what the market is going to do. Sometimes it will surprise the hell out of you. The mind that is flexible enough to recognize that fact, and shift stance quickly at the appropriate inflection points, has a far better chance of accruing substantial profits in the long run than the more rigid mind that demands the market follows the script he or she has dictated, respects the “hard work” of analysis one has done, and so on.
To the degree that the above principles are forgotten or neglected, these extended discussions aren’t really about trading or investing at all. They are more about entertainment…
November 23rd, 2010 at 11:47 pm
My name’s America and I’m an alcoholic.
Recently I have drank so much that I no longer feel like I need another drink.
Some people think I still have a problem but I think I’m on the way to recovery….at least until the next hangover kicks in
November 24th, 2010 at 12:49 am
BR, to be fair, you should probably call out the uber-bulls who were calling for a barn-burning, V-shaped recovery.
~~~
BR: I trashed the Uber Bulls who refused to believe in the collapse. The difference is, they all went broke and are now silent. The uber bears wont STF . . . Its just boring.
November 24th, 2010 at 1:26 am
Barry,
IMHO
1. I like your GDP figure, but you have to remember 12.5+% of that reflects government spending. Real GDP is falling by close to 10% (of course the market may not care for a while).
2. The unemployment rate is very high, and those people won’t be spending, nor getting jobs anytime soon.
3. We have just begun to de-lever from the largest debt/GDP ratio in history
4. QE2 is causing margin compression since wages are stagnant, and commodity prices were rising (although Europe may strengthen the dollar). QE2 is was causing inflation and bond yields to rise
5. If the Republicans attack the debt ceiling in April, then yields will really rise
6. Housing isn’t going any higher anytime soon.
7. Municipalities and States are in big trouble.
Bottom line: Not much of a case on the up-side other than dollar devaluation and POMO. Plenty of down-side risk due to the dollar continuing to strengthen and deterioration in the corporate bond markets. This is a long process where a debt bubble has been burst. I say trade the rallies, but the long-term trend should be down until the banks and the debt are restructured. It took the entire 1930s and WWII in the past. Japan is still playing the game.
I say surf the waves, trade the rallies.
November 24th, 2010 at 5:13 am
Barry I am inclined to think you write pieces like this to measure sentiment.
After all the question of being bearish, a stock market term, is unrelated to whether a recession, an economic term, is over. But your use of such phrases always generates lots of heated comment.
I cant help wondering if you grade each comment on some scale of bullishness/bearishness and therefore have an ongoing sentiment tracker. If followed over a reasonable period you would iron out any specific biases in your audience. Could be very interesting data and a reasonable reward for putting a most enjoyable blog together.
November 24th, 2010 at 7:18 am
I write these primarily in response to the many emailers who insist the recession never ended, data notwithstanding.
Despite the fact that the freefall of 2008-09 is over, and grudgubng improvements have taken root, I still get 5-15 emails per week from different economists, readers, traders, strategists who insist otherwise.
Sentiment is only a by product — but it does provide a fascinating look into sentiment . . .
November 24th, 2010 at 7:47 am
[...] Zombie Bears: Time to Admit the Recession is Over [...]
November 24th, 2010 at 9:32 am
experts emailers here are confusing direction UP
with level, still really BAD because it was the deepest
we have a recovery, technically by the NBER, when we one month up from the bottom.
please note– financial wizards–that the stock market LEADS even this extremely early version of good news by many months.
if you want to wait to by stocks till you like level, meaning most people feel good and are employed i will be thinking about selling to you. So deep down this time that might be three years away, i hope.
same on the other side
the stock market had done big round one leg down by march 2008
when jobs still near record good
November 24th, 2010 at 11:49 am
With all due respect, it is now chic for former bears to be bullish. NO ONE (cept Prechter?) WANTS to be bearish. I agree, in some respects the Recession has been over, but if this IS “RECOVERY”? then it would be (according to David Rosenberg data) the weakest recovery on avg of the last 8 recorded…in history.
How does gov handouts (99 ‘ers) and strategic defaulters (some say $10 B a month to economy) equate to new day is dawning?
Record corp profits? Yet they sit on “cash horde” experts say….why so? why the uncertainty? How do we have RECORD profits if the financial companies are not taking loses on books and mark to market is dead and so are real profits…..financials make up HUGE portion of SPX 500.
Banks are not lending, standards stricter, credit scores and home equity do not alow many to TAP into lowest rates in history, so bank loans outstanding continue to limp along worst it ever was…how do you get bullish when credit continues to contract? when all that FED money sits idle more or less?
WHY ignore the DEPRESSION among SAVERS? who forgot savers spend too? DIDNT banks used to lend REAL DEPOSITS?
I so much BS from all these so -called experts…yes its real chic to go along with MSM as Barry seems to have…..and it takes much more courage not being a zombie to tell it like it is! PRINTING MONEY Doesn’t bring prosperity nor does hiding losses…..what we got are ZOMBIE BANKS and ZOMBIE bloggers
November 24th, 2010 at 11:59 am
Here’s your recovery friends
http://contrarianadvisor.blogspot.com/2010/11/headline-new-home-sales-unexpectedly.html and check out chart……7 of last 8 Recessions HOUSING led the way as well it should….the stock market no longer respresent reality it is GAMED….trade it, dont cherish it. There are 8 MILLION Americans or MORe who wish not to have the TRUTH swept under the rug.
Duratek
November 24th, 2010 at 2:38 pm
[...] a while ago. Ritholtz, one of the most bearish commentators during the downturn, believes that the economy has finally turned a corner (hooray!), but adds that “zombie bears” who have staked their reputations on the idea that [...]
November 24th, 2010 at 2:51 pm
Call me when the government is not printing / borrowing 13% of GDP and calling this real growth. Sure the numbers look good when you keep changing the way you count… but until the private sector has real growth we are just temporally “papering” over the issues.
That said… just b/c I think the numbers are a joke that I am a bear, I’ve been invested since about 10% off the lows. And now moving more into cash and have tight stops on bonds… I just have that feeling that I should ensure the return of my investments vs. the return on.
November 25th, 2010 at 5:34 am
Real consumer spending rose 0.3% in October, following a 0.2% gain in the prior month. A large part of the increase was from purchases of cars and other recreational vehicles. Outlays on services held steady during October after a 0.1% increase in September. The October consumer spending data combined with conservative projections in the last two months of year points to moderate growth during the fourth quarter. However, if the October pace of consumer spending prevails in the next two months, our current forecast of real GDP growth for the fourth quarter would have to be raised. Consumer spending during the last six months has posted the longest stretch of gains in the current recovery.
November 25th, 2010 at 8:38 am
I do not think that BR was being quite fair to Robespierre- it is, after all, not an argument for the end of recession that “most states are broke”. For those who know how much private business depends on state contracts, and how much private consumption depends on the incomes of state and local government employees, whose wages and benefits are now subject to partial confiscation, this is pretty scary and actually constitutes a strong permabear argument.
. The durable goods orders and the housing stats recently released also argue strongly for a continued recession. BR ably deconstructs the self-serving housing reports served up by the realtors each month, but , even though many on this site are aware of the shadow govt statistics site, including , I presume BR, BR appears to quote the official stats to support his argument without accounting for the formidable substantive arguments made by that blog and zero hedge, that there is a great deal of “spin” and falsehood in these portrayals. To me, no one who claims that unemployment stands at the percentage stated by the government has satisfactorily explained why those whose unemployment has run out and who have disappeared from the payrolls should not be included. But they currently are not and the figure would be different if they were. It has already been stated that the jobs created model is theoretical and not actual.
BR also concedes, I believe, that the causes of the collapse have not been remedied through financial reform. Among other things, it is difficult to get a true picture of corporate assets and profitability so long as there are so many derivatives and altered financial instruments still out there and still being accounted for in a fraudulent manner. It is in the short term interest of the government and corporations to portray this situations as rosier than it is, and the current laws allow them to do that. Many houses are in arrearage and the foreclosure process has not yet begun- allowing banks to keep the house mortgages as assets with a 100% return of capital when the reality will continue to play out different-and this offers an excellent incentive for cash hoarding as a hedge, which appears to be going on. So long as Zombie Banks still exist-and they do- it is fair to say we still have a zombie economy. Naturally, the fake balance sheets allow the cash heavy corporations to declare record profits but what if” assets” were forced to be stated at their market value? No record profits.
Even assuming the modest recovery that BR does, I think the perma bears have a legit case that it is not sustainable. Inventory build ups, after all, are not home runs ( to use BRs metaphor) but a bet that future home runs will be hit. The resultant batting average is yet to be determined.
It is not the intent of those of us who play “skeleton at the feast” to irk those who contend that short term, there may be money to be made in this market. That is certainly true. But the position that the situation is more dire than those in power wish to disseminate, and that the “recovery” is tinged with fraud, and that the country remains in serious trouble is very legitimate and should not be scorned. You can simply respectfully disagree.
November 29th, 2010 at 11:53 pm
[...] Zombie Bears: Time to Admit the Recession is Over, Ritholtz says, These are the Zombie Bears . . . they cannot be [...]
December 1st, 2010 at 10:56 am
[...] regulations for finance. However, as Barry Ritholtz noted in an excellent article, it’s time for the zombie bears to admit the recession is over: After the flood, I started looking for the silver lining. We already had a massive crisis and [...]
December 10th, 2010 at 5:54 pm
[...] that all but insists otherwise. These are the Zombie Bears . . . they cannot be killed. – “Zombie Bears: Time To Admit The Recession Is Over”, Barry Ritholtz, The Big Picture, November 23 How could anyone be a bear right now? The S&P [...]