AND NOW FOR THE HARD PART….
by ilene - July 7th, 2009 10:17 am
MUST READ: AND NOW FOR THE HARD PART….
Courtesy of The Pragmatic Capitalist
I’ve spent a lot of time here talking about the major differences between the current recession and the types of recessions that most investors have grown accustomed to. This literally isn’t your father’s recession. Unfortunately, many are making the mistake of applying recent recessionary data to come to the conclusions that we’re going to experience a ‘82, ‘91 or ‘02 type of recovery. I believe they are sorely mistaken. There is no doubt that we averted a serious crisis last fall, but that doesn’t mean we are out of the woods. I have often noted that there is a huge difference between real recovery and the deceleration in economic declines. This means the the hardest part of the cycle is likely ahead of us. As we’ve said before, this is a two part credit crisis.
In a recent research report HSBC notes:
The progress seen so far could yet prove to be the easiest part of the recovery…with a number of formidable, structural challenges awaiting on the horizon.
However, financial markets, we suspect, may be about to find out that it’s often better to travel than arrive. Despite all the developments of the past year, we believe that the most formidable challenges may lie ahead, and that the more demanding questions are yet to be answered. It now seems likely that the worst outcomes which threatened last autumn have been averted, but it’s far from certain that a solid, durable recovery will emerge over the coming twelve months or, when abstracting from the cycle entirely, just what economic underpinnings remain.
Among the greenest of the green shoots has been China’s sharp rebound in recent months. HSBC, however, is skeptical of China’s positive impact and believes the optimism is a bit overdone:
At first glance, the sharp rebound in China’s fixed investment (up 34% year-on-year in May) certainly sits oddly with the continued collapse in imports (down 25% over the same period), but the steep decline in import values is at least partly explained by commodity prices, which are still much lower than a year ago. China’s import volumes of iron ore and oil are, in fact, among the few that have shown any significant revival recently and the ongoing infrastructure investment suggests this is set to continue, bringing obvious benefits
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site