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Wednesday, May 14, 2014

Flashback to March 2009

by Calculated Risk on 5/14/2014 12:13:00 PM

For fun: This morning Barry Ritholtz reminded me of an article by Charlie Gasparino from March 2009: Is the Worst Yet to Come?

[T]hey can’t believe what they are witnessing: an economic agenda that is contradictory at best, and possibly reckless in its extreme. Policies that will certainly make a very bad situation even worse ...
Gasparino basically called the market bottom! (Ritholtz wrote yesterday: The Parasites of Finance)

Not to pick on Gasparino - we all make bad calls - but here is what I wrote at the same time: What is a depression?
It seems like the "D" word is everywhere. And that raises a question: what is a depression? Although there is no formal definition, most economists agree it is a prolonged slump with a 10% or more decline in real GDP.
I still think a depression is very unlikely. More likely the economy will bottom later this year or at least the rate of economic decline will slow sharply. I also still believe that the eventual recovery will be very sluggish, and it will take some time to return to normal growth.
It is possible - see Looking for the Sun - that new home sales and housing starts will bottom in 2009, but any recovery in housing will probably be sluggish.

That leaves Personal Consumption Expenditures (PCE) - and as households increase their savings rate to repair their balance sheets, it seems unlikely that PCE will increase significantly any time soon. So even if the economy bottoms in the 2nd half of 2009, any recovery will probably be very sluggish.
This was one of a series of my more positive posts in 2009 (after being very negative for several years).  Not perfect, but clearly my outlook was changing.

1) The recession ended in June 2009 according to NBER.

2) Housing starts bottomed in 2009, but new home sales didn't bottom until 2010-2011. Note: I predicted house prices would continue to decline, and finally called the bottom for house prices in Feb 2012.

3) The recovery has been sluggish - for housing, PCE, and the overall economy.

Sometimes it is fun to look back. I remember watching CNBC at that time, and it seemed every talking head was bearish - and many were predicting a depression. Gasparino wasn't alone, and those of us looking for the economy to bottom were definitely in the minority.