Tuesday, April 20, 2010

Always darkest before the dawn

I thought you might find this (slightly edited) excerpt from a Time Magazine article interesting:


IF AMERICA'S ECONOMIC LANDSCAPE seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. That may explain why so many voter polls, taken as the economy shudders toward the November election, reveal such ragged emotional edges, so much fear and misgiving. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. In a normal rebound, Americans would be witnessing a flurry of hiring, new investment and lending, and buoyant growth. But the U.S. economy remains almost comatose. Unemployment is still high; real wages are declining. At a TIME economic forum last week, forecasters predicted that U.S. growth would amount to half the speed of a normal recovery. The current slump already ranks as the longest period of sustained weakness since the Great Depression.

That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the banking collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said Norman Robertson, chief economist at Pittsburgh's Mellon Bank. "There's going to be a lot of trauma before it's over."


By the way, the article appeared in the September 28,1992 issue of Time. Thanks to Professor Mark Perry for the link.


  1. Yes, brilliant, Carl. But you have to go through something like last year to know how to be bullish in the face of the seeming end of the world. Even if you had posted this on March 9, 2009, I (and I suspect many others) would have said "This time it's different." I for one am glad that I could experience the last two years as an active trader. It's been an amazing experience and I am the wiser for it.

  2. Wow...sounds just like today's economy. Thanks chief!

  3. Excellent. While reading I had no clue this piece was from 1992.

  4. Brilliant indeed. Although Carl, I don't think you can compare the 1990 recession with what we are living now. And the markets have more than recovered their losses.
    For a comparison of the past many recessions, please check this unemployment chart, and let me know what your thoughts:

  5. Capitalist are resilient as history has proven. The political commentary of the same time & place in history is clearly much more burdensome to the capital markets this time around in 2010. I suspect it will become a convulsion between the two idealogues in the next generation that will determine who is the fox and which is the hound.

  6. I don't think the two periods are very similar. The levels of debt and the lack of savings coupled with much higher unemployment are distinct. Plus, the average worker is much older now.

    I could be wrong but I think the Fed was still on an easing cycle on rates.

    I could cherry pick similar quotes from the rally of 1930 to present day comments, which would be much more relevant actually.

    We're in a period of massive debt deflation.

  7. Last couple of major recessions ended with the re-stock piling of Defense weapons. They conincided with either the begining or ending of Gulf war. After all Defense contributes to 40% the jobs/economy (consumption of course is a byproduct of the jobs created with Defense budgets in US). This time too America needs to manufacture a major War against some artificially created "rogue" nation to jump start this economy. But I think Obama's values are good enough not to initiate past ugly tactics.

  8. That's some fine cherry picking. Comparatively, the 90's S&L crisis was a very mild banking crisis. Moreover, it coincided with a relatively debt-free country full of boomers moving into their peak earning and spending years. If you want to understand how this next decade unfolds, simply study past financial crises with similar debt-burdens and demographics. Hint: they're always protracted affairs (and yes, it's typical at this stage of the affair for most to believe in a simple V-shaped inventory cycle recovery...and you can't blame them, it's all they've ever known)

  9. Well said bullbear...most people have confirmation bias over how the market will recover because it's their most recent experiences...

  10. Carl,

    Even the Perma bears(Prechter types) agree that there will be a huge bull market coming in a few years... It is just that they expect one more dip before it goes higher while Perma Bulls expect it to be a new Bull run underway.

    So what is your contrarian point?

  11. I'm sure we will get a huge rally soon.

    However, I expect it to come after the ground up rebuilding of new financial and monetary systems, after a complete collapse of the current system (due to $600T of derivatives imploding).

  12. Carl,

    So really, what is your point here?

    My advice...Play the charts and nothing else! Period.