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The ‘Unpleasant’ Specter Of Economic Decline
There's no such thing as a "good" recession. Only less bad ones.
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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.