I’ve been quite mystified at all of this “double dip” recession talk, even though I suppose it beats the “V shaped recovery” talk. Both presuppose that we had a recovery underway, the real sort, not the type that is mainly the artifact of inventory restocking, halting and sometimes covert stimulus, (like hiring unprecedented numbers of Census workers, cash for clunkers and home purchase tax credits to induce consumers to accelerate investments) and a weaker dollar than has since gone in the reverse direction.
While employment is a lagging indicator, you need to have a realistic prospect of meaningful hiring to talk of recovery. Small business was pretty much the only engine of job growth in the last expansion. Small businesses are now credit starved and suffering, and their prospects seem unlikely to turn in a meaningful fashion anytime soon.
And these concerns were operative before the sucking sound of deflation coming out of Europe had become a major part of the mix.
Some sightings of the new caution include Marketwatch:
The unexpected decline in May’s retail sales has many economists questioning the strength and durability of the nascent recovery…it was pretty much across the board — even if you exclude autos.
On the surface, this seems at odds with consumers’ attitudes. The latest survey of consumer sentiment shows a better-than-expected gain.
However, by historical comparisons, consumer moods are still fairly dour. And at any rate, these consumer surveys are not a good predictor of how much people actually spend….consumers are increasingly reluctant to open their wallets…They tend to frequent big-box stores and other discount outlets — and only when these merchants run big sales.
This hunkering down extends to consumers in all income brackets.
Another cheery report comes from BNP Paribas (hat tip reader Scott):
“I see quite a lot of market participants who talk about economic figures and corporate figures still being strong, which are, to a large extent, rational arguments,” he [Philippe Gijsels, the head of research at BNP Paribas] said.
“The only problem with these figures is that they give a rear view mirror perspective. They give us a valuable inside about the past, but fail to answer the question how much the economies in the US and even more so in Europe will slow down in the second half of the year and going into 2011,” Gijsels said.
What of those who say valuations are cheap? He has less sympathy for this argument.
“If we compare the price earnings valuations with the recent past, markets look attractive. However, when we look at stock market history, we see that valuations follow a regime switching pattern. A P/E of 15 can be the average for 15 years and it can drop to an average 8 for the next 15 years,” he said.
“Unfortunately you never know in what regime you are investing. And if people start to use bond yield/earnings yield arguments as an argument to buy this market, I invite them to look at this indicator in Japan over the last 20 years.”
David Rosenberg of Gluskin Sheff, who despite his generally dour outlook did get bullish for a short while, is back to being downbeat:
The smoothed ECRI leading economic index fell in the opening week in June for the fifth week in a row and now down in nine of the past ten. The index, went from +0.3% to -3.5%, the weakest it has been in a year. After predicting the V-shaped recovery we got briefly in the inventory-led GDP data when the index soared off the bottom in late 2008, at -3.5%, we can safely say that this barometer is now signalling an 80% chance of a double-dip recession. It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions "” with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession "¦ only 100% of the time (42 years of data)
It would be nice for this to be over, but the history of severe financial crisis is that that recovery is longer in the making than in a normal recession, and tends to be weak in the absence of cleaning up bank balance sheets. Yet the aggressive “green shoots” boosterism and other forms of cheerleading by the officialdom plus optimistic interpretations of data were persuasive for a while.
You mean, a recovery isn’t a recovery if it’s jobless? If the US Administration is hapless, and the US Congress, who will lead the global economy out of the Greater Depression? Policy makers seem intent on protecting lender’s interests, to the undoing of all.
That is my decidedly not widely shared view. Headline unemployment pushin’ 10%, more meaningful measures getting within haling distance of 20%, you are smoking dope if you talk “recovery” without a meaningful change in those numbers. I don’t consider a wee bounce off the bottom (technical improvement) worthy of the name “recovery”.
While I agree with your sentiments I cringed at your association of pot smoking with bad decisions. Where is the science that says alcohol drinkers or maybe even consumers of religion make better decisions than pot smokers?
Maybe if some of these people smoked pot they would make better decisions.
Psycho…: great point, however, where is your evidence that they DONT smoke dope or drink? Logically, they must, since they spend all day sailing into the wind of reality. It’s exhausting to do that day after day.
I think of “smoking dope” as connoting something much stronger than pot. Heroin (more broadly, opium) and meth, for instance, can all be smoked.
It is not just the balance sheet issues.
Mush like the 1920s (mass production manufacturing), there were large productivity gains in the market that caused an increase in capacity while at the same time decreasing the number of people needed for any given task: both the opening up of the Chinese economy (capacity increase) and advances in communications-computer networking play their part.
If you have deflation, you are going to try and get more efficient with you ever increasingly valuable dollars (money units), rather than simply bring in more capacity. In a boom period a lot of the capacity will have been brought in in a hurry so there often is room for this improvement. So the productivity issue has some of its own flip side negatives.
So you have not only a massive overbuild in capacity, but everyone trying to work their way out of it by getting more efficient with what they have. If it were not for a bubble having built up the bump in the road into a mountain, the inventory cycle would help you get past it.
And now we are starting to hear chants of “default on the US debt.” http://www.balloon-juice.com/2010/06/15/it-cant-happen-here/
So, are we stuck behind the mountain? It’s been stated we must understand the root cause of the illness, before finding a cure. However, even after finding a cure, there must be the political will carry it out. If global stagnation is the illness, the cure must be global leadership. The US will have lost it’s leadership position, but will undoubtedly play a large role in leading any recovery. The real question becomes, is the US able to be a leader? Certainly not this congress, or this administration, who are as much of the problem, rather than the solution. How bad must it get before someone with enough authority stands up to assume leadership of a recovery. How much suffering? There is no question of the cause, if one is God fearing. The only real recovery will be a godly one, and not one of the princes of this world, of which we have seen enough already.
Yeah…just like the Christians helped Rome “recover”… Religious rule has shown itself many times to be disastrous.
Indeed, a large part of today’s problems are attributable to the return of religious warfare.
Now who would want such a thing, and why?
A Godly recovery? Is that like faith healing?
Scott,
I'm always amazed at the intense derision that religious-based comments elicit, given that our so-called "secular" ideologies have proven to be equally as disastrous.
Michael Allen Gillespie argues in The Theological Origins of Modernity that religion really didn't go away in our ostensibly secular world:
What actually occurs in the course of modernity is"¦not simply the erasure or disappearance of God but the transference of his attributes, essential powers, and capacities to other entities or realms of being. The so-called process of disenchantment is thus also a process of reenchantment in and through which both man and nature are infused with a number of attributes or powers previously ascribed to God. To put the matter more starkly, in the face of the long drawn out death of God, science can provide a coherent account of the whole only by making man or nature or both in some sense divine.
And this is nowhere more evident than in the field of economics, as Gillespie goes on to explain:
Divine or at least quasi-divine powers reemerge although always in disguise. Nature is an embodied rational will; the social world is governed by an "invisible hand" that almost miraculously produces a rational distribution of goods and services; and history is the progressive development of humanity toward perfection.
Of course ascribing divine virtues to humans and to nature has proved disastrous. Gillespie again explains:
The Terror was"¦the first modern example of the danger in ascribing divine attributes to human beings. A transcendent God could perhaps always will in a truly general or universal manner, as Arnauld and later Malebranche maintained, but finite human beings could not, and the demand that they do so inevitably ended in tragedy.
The atrocities and body counts committed in the name of putative secular ideologies—-fascism, communism, capitalism—-are far, far greater than those ever committed in the name of religious ideologies.
Dude is correct in that capitalism, and indeed the entire modernist project, is now in crisis.
Looking forward, I certainly do not know what the solution is. But those who live in glass houses shouldn't cast stones.
“Equally as disastrous”? I respectfully disagree.
"Looking forward, I certainly do not know what the solution is."
Focus on the common enemy, the wealthy ruling elite, who manufacture differences and amplify differences so as to deflect from their wealth and to divide and control. They have co-opted all that is good by wearing it on their sleeves and then use all of that good to divide and conquer. Don't swallow the bait! Redirect your anger from all of their propagandist divisiveness to their selfish machinations and corruptly gained wealth. Stop hating each other, we have all been snowed and used, focus on the wealthy elite scum who have now bought the neocon elite Full Spectrum Dominance plan which includes dominance over us all.
The co-options and differences will fall away when exposed.
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