Track The Turnaround

an ongoing vote of no confidence

The stock market is down 40% over the past several months and is sinking to new bear-market lows levels not seen in 11 years. There seems to be no end to it. At least a few things are clear: The market has yet to see compelling signs of a recovery and, at best, it has no confidence that government policy in the U.S. or other major economies will arrest the rot. At worst, it reflects the collective view of the market that policy is actually worsening the rot, or expectations that policy will further worsen the rot. Until that sentiment -- and the reality fueling it -- changes, we're not going to have a recovery. Certainly not a very good one. At this point, I don't see this situation changing for the better anytime soon, but I'll post again when we again see early signs that it will.

The stock market is down 40% over the past several months and is sinking to new bear-market lows levels not seen in 11 years. There seems to be no end to it. At least a few things are clear: The market has yet to see compelling signs of a recovery and, at best, it has no confidence that government policy in the U.S. or other major economies will arrest the rot. At worst, it reflects the collective view of the market that policy is actually worsening the rot, or expectations that policy will further worsen the rot. Until that sentiment -- and the reality fueling it -- changes, we're not going to have a recovery. Certainly not a very good one. At this point, I don't see this situation changing for the better anytime soon, but I'll post again when we again see early signs that it will.

The stock market is down 40% over the past several months and is sinking to new bear-market lows levels not seen in 11 years. There seems to be no end to it. At least a few things are clear: The market has yet to see compelling signs of a recovery and, at best, it has no confidence that government policy in the U.S. or other major economies will arrest the rot. At worst, it reflects the collective view of the market that policy is actually worsening the rot, or expectations that policy will further worsen the rot. Until that sentiment -- and the reality fueling it -- changes, we're not going to have a recovery. Certainly not a very good one. At this point, I don't see this situation changing for the better anytime soon, but I'll post again when we again see early signs that it will.

...maybe...

Goldman Sachs, in its latest ECS Markets Research report, finds mixed evidence -- in factory output data and related surveys from the U.S., Europe and China -- that the global economy might be approaching a turning point:

Anecdotal evidence suggests some light on the industrial side...[there's been] an abatement in the rate at which new orders are falling [inflection point!]....inventory-to-sales ratios have tentatively turned down as new orders have bounced while inventories have remained under control or fallen....a trough in the global industrial cycle may be in sight

But the report warns final demand in the US and Europe remains pretty week; evidence of a coming industrial upturn mixed, scattered and limited, and Asian exports still in free-fall. And even if the cycle turns, "good growth is unlikely to resume for some time," the report says. Translation: a wrenching, Japan-sized L-shaped recovery is a real possibility even if a turning point is upon us.

Well, it's a start.

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More from the great Ambrose Evans-Pritchard. A great overview of these fledgeling glimmers of stabilization, and maybe recovery.

The good, the bad and the ugly

At this point, there's good news, bad news and...quite ugly news.

The housing market may have passed an inflection point. It's still sinking overall, but it's showing early signs of stabilizing -- with earlier reports suggesting overall price declines are decelerating, the pace of overall sales declines shrinking and the surge in inventories slowing. We may be approaching the new post-bubble equilibrium, absent other major shocks. That's the latest good news.

The most important bad news today is not in news sections but in the op-ed section of today's Wall Street Journal, where Professors Reinhart and Rogoff make a disturbing case that the U.S. financial crisis is, in some sense, typical and therefore subject to typical crisis traits. They find striking similarities between this crisis and Spain 1977, Norway 1987, Finland 1991, Sweden 1991, and Japan 1992, suggesting:

...the bottom won't come before the end of 2010...equity prices could still take a couple more years for a sustained rebound...the duration of the period of rising unemployment [could average] nearly five years, with a mean increase in the unemployment rate of seven percentage points, which would bring the U.S. to double digits.

The ugly news is in Washington. DC, which shows no clear indication it will avoid past mistakes or clear the way for the necessary, wrenching adjustment from the excesses of the past. The chaotic clash of mostly bad ideas and motives alone, evident in the messy debate over the so-called "stimulus" plan, only serves to aggravate uncertainty and undermine market confidence that these people know what the heck they're doing, or really have the economy's best long-term interests at heart.

Uh oh.

Gold has rebounded 30% since November in part on fear U.S. and other Western governments are spending money they don't have, making promises they cannot afford and offering incoherent "rescue" plans that won't work. A massive currency collapse, like what we've seen in Mexico, Argentina, Russia and other banana republics, could happen to the U.S. Let's hope not, but the renewed surge in the price of gold suggests the market is again losing confidence in the system, and for good reason. Government policy is the big wildcard here. Bad policy and incoherent and inconsistent execution will delay and potentially undermine the recovery.