Wednesday, March 04, 2009

More Thinking About the Economy

Just so nobody thinks everybody is forecasting disaster, I wanted to share this bit from Andrew Tobias' column today:

Not everyone is despairing. Remember that the massive stimuli you’ve been reading about are only in the early stages of phasing in. Maybe they’ll have an effect?

From Hook Analytics current weekly compendium (an under-the-radar independent macro-economic research product for institutional clients): “Based on the history of large money supply increases, we estimate that the Fed’s forecast of second-half 2009 recovery is more likely than continued recession into 2010; that the next few years will probably have sub-normal growth, low inflation, and low interest rates. We think the circumstances more resemble 1933 than 1931; 1982 more than 1980. That is, we think we are mostly through a recession and market crash and that the next large move will be 40-60% higher stock prices.

I would hardly bet the farm on this scenario – and actually, neither would John Hook. But he sees central bankers flooding the world with money and credit – which, he says, is not what Hoover did in 1931 – so, from a monetary perspective, that could make this 1933.

In one of my first posts on Sempringham, in January of last year, I talked about the history of the Dow Jones average during and following the Great Depression. The Dow kept going down for three years, losing 89 percent of its value. And if that wasn't enough -- it did not return to its pre-Crash value until 30 years later.

Having put that out there, I expect this to be different. For one thing, I am really impressed with how quickly the Stimulus money is getting out there. The bill was signed on February 17 and, according to tonight's news, already some companies are hiring new employees, or bringing back laid-off employees, as a direct result of it. The questions remaining are 1) was the stimulus large enough, and 2) how quickly will it be felt in parts of the economy that were not direct beneficiaries of it?

I'm hoping John Hook and the Fed are right, and that we'll see recovery begin in the second half of 2009. If that happens, the country as a whole will have dodged a bullet, even if too many individuals and companies did not.

In the meanwhile, we can count on the short-term memory hysterics in our press to forget all about how we got into this mess, and blame Obama for everything.

1 comment:

troutay said...

Actually, it is not called the DowJones anymore. It is the "Down"Jones.