The ‘Unpleasant’ Specter Of Economic Decline

The ‘Unpleasant’ Specter Of Economic Decline

There's no such thing as a "good" recession. Only less bad ones. If you have to have a recession -- and quite a few observers are convinced the US needs one desperately to cool inflation -- it's best if it's not triggered by a systemic event. I've persisted in a kind of self-imposed limbo for the past six years, but even prior to that, life felt a lot like purgatory. My last genuine memories -- visceral moments my mind recognizes as unequivocally "real" -- are from 2010. To me, Lehman "feels l
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One thought on “The ‘Unpleasant’ Specter Of Economic Decline

  1. My supposition (not backed up by much analysis) is that shallow recessions tend to be shorter recessions, and recessions caused by structural economic problems tend to be longer recessions.

    I feel that this coming (or current?) recession is likely to be a shallow, short one.

    I don’t see major structural economic problems (as opposed to social problems, of which we have a surfeit, and while social problems beget economic problems, that isn’t necessarily within a couple-year investment horizon).

    I think this recession is mostly caused by liquidity withdrawal (fiscal and monetary) and external disruptions (food, energy, supply chain). The liquidity withdrawal will end (already mostly done for fiscal, 100-150bp away for monetary). Food and energy supply will stop getting worse (although prices could settle at higher-than-before levels). Supply chain is getting better.

    A shallow recession doesn’t necessarily mean a shallow bear market. When you start from grossly overearning and grossly overvalued, the repricing can be severe even if the pain “on the ground” averages out to moderate. I do think it suggests a short(ish) bear market.

    The recovery out of the trough could be sluggish (absent a pandemic-style flood of liquidity) but then again everything seems to be happening faster in modern markets so who knows. The shape of the recovery feels like tomorrow’s, not today’s, question.

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