V-Shape, U-Shape, L-Shape - What Shape is this Recovery?

So far so bad . . . .. The stocks in Asia are down a good bit. Folks seem to be realizing that the recovery is not quite what it was cracked up to be. Personally, while I have seen this coming for a long, long time, I would do much better if things rebound. Sure, I have some short bets but they are hedges against larger equity investments and I do not think my hedge is big enough to really make things better for me to the down side, versus the up side. Any hoot, it is not my choice on where the market goes and when it goes in a direction I think the fundamentals indicate, who am I to complain?

Pick Your Keyboard Key

There seems to be a real challenge in this recession to pick the right keyboard key to describe it. I have seen the usual V, the L, the W and the oh so popular U. Tonight I see yet another stroke, the X. I like the dynamic of it. It has a certain strength to it, a certain stand-alone purpose. I don't get it at first sight, but I like it. So what does an X recovery mean? Well Robert Reich explains:

"When Will The Recovery Begin? Never.
The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.
Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.
That's where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.
Personally, I don't buy into either camp. In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.
Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.
Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.
My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.
The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come."

http://robertreich.blogspot.com/2009/07/when-will-recovery-begin-never.html

My own sign for this economic recovery, in case you are interested is "?"

? seems to tell it all. I do not always agree with Robert Reich, who I quote above, but on this quote I thnk he is dead on. Seriously folks, our economy for the past several years seems to have been based on selling stuff to each other. Roughly two thirds of our economy was based on us buying stuff from ourselves. Let me repeat - and as I do so please think about this - roughly two thirds of our economy has been based on us buying crap from ourselves. Now if an economy could survive by buying stuff from itself, you could survive just living at home buying stuff from yourself and never leave your house - seriously. How the heck could this ever work - y0u must ask yourself. One simple answer, debt.

We have been buying ourselves stuff with debt. We have been through a massive debt build-up. And when I say "massive" I mean MASSIVE!!!!! Our debt load, as a percentage of GDP, is at record levels. We have been buying crap from ourselves fueled by debt at massive, record, levels for years. How can that happen? Let's speculate.

Stupid Dude 1 buys a house and the house is priced at $500,000 but it is likely only worth $300,000. Any hoot, the house appraises at $600,000, so everything is fine. Stupid Dude 1 gets a loan for 95% of the house value. After a year the new house appraises at $750,000 and now Stupid Dude 1 is able to take out a second loan on his house. And so he does. He takes a $100,000 equity loan and buys a new sports car and spends lots of cash on other things (big screen TVs, computers, etc.). Everything seems fine.

And then the economy and house prices dive. Stupid Dude 1 is screwed. And so forth and so on.

The sad part, this happened to thousands if not millions of not stupid, irresponsible people. It happened to every day people who are not in the least stupid. They are instead, victims of a severe economic downturn that the experts did not see coming. My heart goes out to those in need -truly.

Disclosures: None.