Recession Over – Everyone Back on Your Heads

So 27 of 45 Economists claim the Recession is over based on the GDP for the last few months, according to an article in the Wall Street Journal, “Economists Call for Bernanke to Stay, Say Recession Is Over“.

“After months of uncertainty, economists are finally seeing a break in the clouds. Forecasts were revised upward for every period, with 27 economists saying the recession had ended and 11 seeing a trough this month or next. Gross domestic product in the third quarter is now expected to show 2.4% growth at a seasonally adjusted annual rate amid signs of life in the manufacturing sector, partly spurred by inventory adjustments and strong demand for the “cash for clunkers” car-rebate program.”

Aren’t these the same economists that could not see the sub prime melt-down or the credit crunch, or the deep recession we just had? Have they been away attending an economic gulag where they had mind-altering drugs or something?

I’m not sure if it’s more of a vote for Bernanke to stay because they believe it’s better to have the devil you know. And Bernanke is on record as saying he will keep throwing money at the recession – “Helicopter Ben” is his pet name. That’s keep all the financial guys in a job.

Wouldn’t you expect more than “signs of life” in the manufacturing sector if your government gives it’s people $2Bn to buy new cars?

I really liked this comment by Anaxagoras on another article entitled, “The Recession is Over

“In reviewing the economists’ GDP estimates the last 18 quarters, collectively they OVER-estimated GDP growth 10 of 18 quarters (55%), were on the money 3 of 18 quarters (17%) and UNDER-estimated GDP 5 of 18 quarters (27%).
So there is a 2X bias to OVER-estimate future GDP. Feel better now about those forecasts?”

All this reminds me of an old joke I vaguely remember. It was about some guy going to Hell and who had to choose one of three rooms where he was to spend eternity.

To cut the story short the first two rooms were just too horrible to contemplate. The last room looked the best of a bad bunch. It was full of Economists (my version for this blog) all drinking cups of tea standing up to their waists in sh*t. (Sorry I need to make the point).

He reluctantly told the Devil he would join them. He then got his cup of tea and waded into the sh*t.

Not long after he finished his tea a bell rang and the Devil shouted out, “Tea-break’s over, everyone back on your heads!”

The joke may not be completely relevant, but I hope it’s funny.

After the financial catastrophe that was, I think government subsidized GDP growth is just not enough to say the recession is over. All the “technical indicators” have been off the charts for months. Yes, the charts show growth but the figures have to be rubbery and need some time to firm up. Or at least take out the stimulus effect and see what the charts are still at least turning up.

After the US GDP dropped 5.4% and 6.4% in the 4th Qtr 2008 and the 1st Qtr 2009 respectively what would you expect? Through that period millions of people were put out of work and companies cut costs like crazy.

Those people are still out of work. The companies may well be making more products like cars maybe, with less people and the government is spending up big time.

So the bottom line of many companies may look good. Wall Street also lowered the estimates for reporting season and so you have a “manufactured” growth result.

However as they say, it’s all about confidence. If they can convince the public the worst is over then it might be all aboard the credit train once again. Remember 70% if the US growth is consumer credit driven, or it was in those days gone by.

France and Germany claim their recessions are over too. Hurrah!

“Both countries introduced car “scrappage schemes” in January. France offered consumers 1,000 euros ($1,554) to trade in cars more than 10 years old for more fuel-efficient vehicles, while Germany offered up to 2,500 euros ($3,883) for cars more than nine years old. In Germany, the result was a 40% surge in annual car sales in March.

The success flies in the face of critics who denounced the stimulus packages as too small to be effective. Germany’s stimulus package totaled ¤81-billion ($125.8-billion) or 3.25% of GDP, while France deployed a 26-billion euros ($40.4-billion) program worth 1.3% of GDP.”

The article goes on to say,

“Nevertheless, after four quarters of economic contraction, the German and French governments have stimulated their economies back to growth.”

Wouldn’t you say their governments only bought their way out of a recession – for now. They applied a stimulus and got a response. That’s how it works. That stimulus has run its course. Now they may have to do another stimulus to get another response. The questions are how many stimuli will it take and will they give up throwing money around before the real economy kicks in?

Germany extended the car scrappage scheme,

“The German government is set to extend the €2,500 (£2,330) scrappage premium for consumers who trade in their 10-year-old cars for new, fuel-efficient models, it emerged last night.”

I don’t know if the recession is over. Cash appears to be pouring into the stock markets and that may be a good thing. If the market has decided to continue to be bullish so be it. But just make sure you protect any nest egg money you have in stocks in case it whipsaws and takes a nose dive.

Long Term Investing is still not an option in my view for Baby Boomers in retirement. It’s all about short term trading. If you can do that with a small amount of your nest egg, good luck to you.

This market is more like a tiger than a bull. So ride it with caution as it might not just throw you off, it might kill you.

2 Responses to “Recession Over – Everyone Back on Your Heads”

  1. Yes, I wonder what’s going to happen to recovery when stimulus money will run out and dollar starts falling. Good example could be car industry after the end of cash for clunkers.
    Thanks for sharing!

  2. admin says:

    Thanks for your comment.

    In response Congress is talking of Stimulus II but have only spent a fraction of Stimulus I. The stock market is in my view giving everyone a false sense of recovery. If you cut staff and expenses you can report a profit for the quarter very easily at least for the first quarter.

    If they think they can get the economy back to the highly leveraged state it was before the crash in the short term, I think they are wishful thinking.

    I assume you are saying by looking at what happens when the C4C ends, we should get a good idea of what will happen when the Stimulus ends. I agree, but it may make them spend the Stimulus I quicker.

    I personally believe they are holding back on the Stimulus I money for the mid-term elections. There is nothing like “Free Money” just before an election to whip those independent voters into line.

    I’ll be watching with interest.

    David

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