why the recession will be twice as long as expected by neophite watchers
(summary from Roach of Morgan Stanley -- not NEPatriot wide receiver)
1. InfoTech has already scaled back hardware, with computers, networking, telecom, fiberoptic, mfg equipmt... but we are about to enter the second phase, with vast cutbacks deepening the software and related service stuff... not only is less hard equipmt needed from this historic oversupply, but less software and service growth is needed to sustain it... LOOK OUT BELOW ORCL, SEBL, VRTS, MSFT (and its Siamese twin INTC)
2. the global recession is picking up steam... so many American nitwits think like pre-WW2, that we are an isolated world power with our self-ticking economy... no, we are the engine behind the global economy... with our imports sharply reduced and reducing further, we are taking down every single exporter-based foreign economy... it has only started, with Korea faring the worst, and Argentina showing signs of near collapse... NEXT ROUND WILL BE DEVASTATING TO STOCKS AS ONE NATION AFTER ANOTHER SEES ITS ECONOMY FALL APART AND ENTER RECESSION
3. this is not a typical "inflation-based" recession... rather, it is like the pre-WW2 (ironic given above point) where oversupply killed the growth phase of the business cycle... now we are behaving like the recessions of yesteryear... we have excess supply of not only capital equipment, but financial securities... an IT and financial glut... the average recession lasted 11 months since WW2 but in pullbacks triggered by inflation... the pre-WW2 recessions lasted 22 months... since oversupply is the key here, FedReserve initiatives are totally insignificant except to lower the cost of massive household and corporate debt... LOWER RATES DONT CREATE DEMAND
evidence that recovery is nowhere near evident lies in the inventory and sales data... sure, inventory levels have come down nicely, but that is only half the picture... what rules in this view is inventory/sales ratio... since sales have come down FASTER than inventory levels, WE HAVENT EVEN BEGUN TO RECOVER... and layoffs will accelerate further
next on the chopping block is REAL ESTATE
Americans have added to their household debt with massive cashout refinances
now residential prices will come down as layoffs mount, and the recovery hopes turn to despair as the recession gathers momentum
sad, but it is time to prepare for a deeper recession
and put aside mindless optimism that is more based on kneejerk than historical rational thought
watch for nonexistent yearend bonuses and worthless stock options to play a negative role in January
we should hear more from the press on this as autumn gets into swing
I have maintained that economic analysis is the worst area of mathstat practice in the world
we are seeing that in spades now
it will be interesting to see if the revised Q2 numbers for GDP turn negative
that would spook investors beyong imagination
I expect it will be close to negative
time to prepare for a much longer duration in the socalled recovery
what worked in the 1950's, 1960's, 1970's, 1980's, 1990's just wont work now
this time is like the Great Depression of 1929-1932
message to GreenScrotum: "YOU CANNOT REFLATE DEMAND AMIDST OVERSUPPLY"
expect numerous false starts to both stocks and the economy, misread steadily
/ Jim |
