Monday, March 09, 2009

What's not to L-U-V about the recession?

This is the great question facing all economists and market watchers - will this recession be:

L-shaped - steep drop followed by a prolong period of stagnation (like Japan in the 90's)

U-shaped - a slow drop followed by a slow but steady recovery.

V-shaped - a sharp drop followed by a sharp snap back.

The debate really focuses on L vs. V. Will the stimulus and financial recovery plans be sufficient to encourage consumer spending, stem job losses, jump start corporate spending, etc? Or will we eventually find a bottom in stock prices and then bounce along that bottom for many years to come. There doesn't seem to be any consensus forming as of yet but you will hear these terms with increasing frequency in the days and weeks ahead.

**********************************************************
I've mentioned before the coming crisis facing the nations pensions. If the stock market doesn't experience a sharp increase (50-100%) soon, these pension costs are going to create a real drag on earnings that is likely to hamper any recovery in stock prices.

Consider the following chart which lists pension liabilities of some major US corporations.
Cheers!


No comments: