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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (129328)	1/26/2010 6:44:37 PM
From: Katelew	Read Replies (1) \| Respond to of 541967

Feel free to correct me if I'm wrong, but here's the timeline, off the top of my head, as I recall. In June or July of 2007, I got some Merrill Lynch research outlining a decline of consumer spending, why it was happening. The same report forecast "the first consumer led recession in 17 years". The reasons given were the same types of price inflation (inc. the real estate bubble) I was seeing around me so I liquidated all my mutual funds and went back to only trading short term. I know this date is correct. The market kept advancing higher. Commodity prices, which were already increasing, began to move somewhat exponentially. I think gas prices at the pump crossed $3 that winter and peaked above $4 the next summer. I think, if memory serves, per barrel oil prices peaked in July of 2008. By Sept. of 2008 oil was falling as were all agric. commodities prices. Food prices around the world were causing consumers to spend less on discretionary items, and in some parts of SE Asia there were riots because of shortages of rice and cooking oil. In this country, consumer spending kept decreasing as oil prices and food prices kept rising and that summer saw the origin of the phrase "staycation" referring to consumers who stayed home for their summer vacations. Airlines, cruise lines, and hotels were reporting and forecasting lower sales. I think I remember the spring and summer of 2008 as the market basically moving sideways in a distributive pattern. In Sept. (I think), we experienced the collapse of Lehman, and then Merrill Lynch's problems were exposed maybe a week later. The market fell 4% or so on one day which was the opening crack in the coming bear market. Actually, none of this matters. The "official" start of the recession is now given as December of 2007. The collapse of Lehman and the rest of the banking debacle didn't occur until the fall of 2008. So I don't see how one could argue that the banking debacle and the collapse of credit that temporarily followed was what triggered the recession. I agree the whole thing was scary. The collapse of Merrill was mind-blowing. But what was really and truly scary was the stock market falling 25% in one day in 1987. That's a collapse. But the economy was back on track by spring of 1988. A few banks went under....Continental of Illinois being the largest, I think. Somewhere in there Chase Bank of Manhattan became JPM because of bad third world loans. The banks always get in trouble during a recession and periodically blow themselves up. No surprise there. This is why I've been pretty sanguine about this recession and this banking debacle. Then it becomes a reinforcing race to the bottom, saved only by the preservation of the banking system as you rightly pointed out. The race to the bottom describes the action of the stock market, not the economy. The market bottomed in March of 2009. But the banks had already been rescued about six months earlier in the fall of 2008. I think the market bottomed then because in late February talk coming out of Bernanke and Washington was such that one knew not a single bank was going to be allowed to fail. Up until then market folk were waiting to see who the survivors would be before committing any serious money. Once it was obvious that no big money center bank would fail, that meant there would be no disruption to the business activities of credit worthy companies....so the coast was more or less clear. The only thing that really surprised me in this whole thing was the extent to which dividends were cut.