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The Biggest Problem Currently Is...

Tyler Durden's picture




 

Excerpted from Lance Roberts' Street Talk Live blog,

The biggest problem currently is that there is virtually no expectation, or analysis that incorporates the impact, of an average economic recession ever occurring again.  Since business cycle recessions have occurred with regularity throughout history; it is somewhat naive to expect that the current market trajectory will continue when we are already 48 months into the current economic expansion. The chart below, as discussed in "No Recession Now But When" shows the history of U.S. recessions and their respective impact on the financial markets (note: the analysis uses monthly closing data points)


Recessions-SP500-returns-110612

 

What is important for investors is an understanding that, despite claims to the contrary, a recession will occur in the future. It is simply a function of time. These recessionary drags inflict lasting damage to investment portfolios over time. The table above shows the start and finish dates, prior peak, and peak to trough price declines during previous recessionary periods. The average draw down for all recessionary periods was 30.76% with an average recovery period of 43 months. For someone close to, or in retirement, this can be devastating.

After two recessions so far in this century, which coincided with very sharp market declines, investor's portfolios have yet to recover on an inflation adjusted basis. Furthermore, and most importantly, with a large segment of the investing population heading into retirement in coming years, the demand for income, over capital appreciation, will weigh more heavily on future market growth. Many individuals are now realizing their own mortality and the critical importance of "time" as an investment variable.  We simply don't live forever.

While the economy is currently not in a recession - the negative trends in the economic and earnings data certainly require monitoring. With very low lead times between non-recession and recessionary states it is very easy to get swept up in the mean reversion process as forward expectations are realigned with current earnings and economic growth trends. With a market that is driven more than ever by momentum, low volume and high-frequency trading - this reversion processes will continue to swift, and brutal, leaving investors little time to react to market changes. This time is NOT "different" - a recession will reassert itself at some point.

 

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Mon, 07/01/2013 - 16:48 | 3711317 Flakmeister
Flakmeister's picture

You can't go back into a recession if you basically never got out of the first one (aside from cooking the books to make it appear otherwise)

Edit: And in the grand scheme of things, this is hardly the most serious problem...

Mon, 07/01/2013 - 16:57 | 3711342 Eisenhorn
Eisenhorn's picture

Recession hell!  We're just advancing in a different direction!

Mon, 07/01/2013 - 17:13 | 3711375 rocker
rocker's picture

Must that "New Normal" thing.

Mon, 07/01/2013 - 17:18 | 3711385 ATM
ATM's picture

It is very hard to measure a recession in dollar terms when trillions of new dollars have been pumped into the system. 

Mon, 07/01/2013 - 17:27 | 3711396 ZerOhead
ZerOhead's picture

Yup... even when you officially 'forget' to take out the trillions injected to keep things UP... things are actually mostly DOWN... but that's only if you take a pass on the deep data massage followed by the necessary chiropractic adjustments...

If the Shadowstats GDP graph is just slightly more correct than not you should be very concerned about what lies ahead.

http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

Mon, 07/01/2013 - 17:30 | 3711416 James_Cole
James_Cole's picture

People think the recession is bad now, give it ten years. Unless the economic system radically changes the idea that current rates of unemployment are high is going to be a laugh in the future. 

Having a tough time getting a job now? Sorry, it's not going to get better...ever.

Unless as I said, people change their view on jobs, economy etc. However, considering that wouldn't benefit the ruling class, hard to imagine it happening. 

Mon, 07/01/2013 - 17:45 | 3711460 NotApplicable
NotApplicable's picture

Well, first off, recessions require an economy...

Mon, 07/01/2013 - 17:57 | 3711492 spine001
spine001's picture

Correct, data strongly support we never got out of last recession. All growth is  based on transitory overflows created by monetization worlwide. That asd many of us have claimed for 4 years now are making the neccesary adjustments tougher and tougher as time passes.

Mon, 07/01/2013 - 18:24 | 3711566 MachoMan
MachoMan's picture

Inflationary depression?

Mon, 07/01/2013 - 18:27 | 3711581 NoDebt
NoDebt's picture

Agreed.  The economy took about a 5% dead-fish-on-the-deck drop in 08-09 and took a bunch of people (permanently) out of the workforce to match.  Everything from that point just about barely advanced with population growth.  The ratchet clicked back a few notches but this time, only the slow grind resumed afterwards- very little "bounce back."  If you got hurt job/earnings-wise in this last one there's a good chance you're going to stay hurt (but cheer up- you'll have plenty of company).

That's what caught the average person by surprise this time- the market rocketed off the bottom but nobody could see any improvement in their daily life being carried along with it.  The investor/banker class was clearly targeted for favorable treatment above all other priorities in this "recovery", so this should not be all that shocking.  The confusion and anger in some quarters is palpable.  If not for the heavy injection of EBT and Food Stamp 'Dopamine', that confusion and anger would be considerably more visible.

Mon, 07/01/2013 - 19:02 | 3711712 Abi Normal
Abi Normal's picture

10 years?  You've just thrown me into a deep depression...we need to reset sooner than that, else I am finished now! ugh, the humanity of it all.

Mon, 07/01/2013 - 17:28 | 3711390 ZerOhead
ZerOhead's picture

I hope they don't bring back 'goosestepping'... that can be really tough on the knees...

Mon, 07/01/2013 - 17:22 | 3711402 rocker
rocker's picture

Must that "New Normal" thing.

Tue, 07/02/2013 - 08:33 | 3713368 Reader1
Reader1's picture

Sir, we're surrounded by Debt!  Great-we've got it right where we want it!

Mon, 07/01/2013 - 17:19 | 3711382 McMolotov
McMolotov's picture

IMO the biggest problem is Carlin's "big club" and how its members feel none of the ill effects of recessions or depressions when they occur. In fact, they often profit more during recessions or depressions.

Recessions and depressions hurt the average person, but they're of little concern to the plutocratic oligarchy that runs the show behind the scenes. Because of their political, financial, and corporate connections, these people are completely divorced from the reality the rest of us inhabit, and this disconnect is probably our planet's greatest destablizing force at the moment.

Mon, 07/01/2013 - 16:50 | 3711318 chunga
chunga's picture

Oh no...not a recession.

[edit] Is this another spoof from the Onion?

Mon, 07/01/2013 - 16:47 | 3711320 Seasmoke
Seasmoke's picture

i always thought was PLAN B was kick the can and have all of us die off in next 50 years and START THE PONZI OVER

Mon, 07/01/2013 - 16:58 | 3711343 astroloungers
astroloungers's picture

Was there ever really a plan A ? If so ...who is the rocket surgeon that came up with it ?

Mon, 07/01/2013 - 17:23 | 3711406 negative rates
negative rates's picture

There actually is one, the band calls themselves the Time Police, and you can call them serious, as not many escape the rath of their Gods or recover unscathed once they get done sendin things down the river.

Mon, 07/01/2013 - 17:48 | 3711468 NotApplicable
NotApplicable's picture

Actually Plan A and Plan B are the exact same thing, with the difference being that Plan B is when Plan A happens a lot sooner than expected.

See, they've only got ONE PLAN. Break a bunch of shit and steal everything when no one is looking.

Mon, 07/01/2013 - 18:35 | 3711607 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Was there ever really a plan A ?

Yes

If so ...who is the rocket surgeon that came up with it ?

Werner von Beige

http://www.youtube.com/watch?v=qegdLb1Q5wE&t=186s

Mon, 07/01/2013 - 16:48 | 3711323 Mark Urbo
Mark Urbo's picture

What economic expansion ?

There is no recovery - period.

Mon, 07/01/2013 - 17:47 | 3711465 Rainman
Rainman's picture

bbutt...AAPL is building a must-have Dick Tracy watch

Mon, 07/01/2013 - 17:49 | 3711470 NotApplicable
NotApplicable's picture

They'd better hope the DoD wants it, cuz that the only expansion I see outside of worthless bank "reserves."

Mon, 07/01/2013 - 16:52 | 3711332 disabledvet
disabledvet's picture

there's too much Government and you're about to get even more. you might get FAR more actually but we shall see. i do agree the second bonus chart vis a vis gasoline prices was very interesting as well. we'll see what happens but i'm not expecting wage a price controls.

Mon, 07/01/2013 - 17:12 | 3711374 whosetosay
whosetosay's picture

"there's too much Government"

Truer words were never spoken.

Mon, 07/01/2013 - 18:22 | 3711559 Mark Urbo
Mark Urbo's picture

Exactly !

 

Way too much government and it in the wrong hands now...

Mon, 07/01/2013 - 18:35 | 3711606 NoDebt
NoDebt's picture

There are no "right hands" when it comes to too much government.  Jamie Dimon couldn't couldn't manage JPM when the "rogue trader" London Whale took them for a multi-billion dollar ride down the IG9 trading sewer pipe.  And the federal government is many orders of magnitude larger than JPM.  Who could ever successfully manage that?

Sometimes too big is just too big. 

Mon, 07/01/2013 - 16:52 | 3711333 SheepleLOVEched...
SheepleLOVEcheddarbaybiscuits's picture

Numbers are manipulated to give the false sense of confidence.

Mon, 07/01/2013 - 17:03 | 3711357 comrade rally monkey
comrade rally monkey's picture

I don't recognize any of those Peak to trough S&P 500 numbers

Mon, 07/01/2013 - 16:52 | 3711336 thatthingcanfly
thatthingcanfly's picture

My hairline is in a recession. Does that count?

Mon, 07/01/2013 - 16:58 | 3711344 wisehiney
wisehiney's picture

No, that is more than offset by expansion of my waistline.

Mon, 07/01/2013 - 18:36 | 3711612 NoDebt
NoDebt's picture

Your hairline is not in recession.  Your forehead is experiencing growth.  Mine, too.

Mon, 07/01/2013 - 16:58 | 3711345 Dr. Engali
Dr. Engali's picture

So basically what you're saying is that you're upgrading us from a depression to a recession. Fanfuckingtastic!

Mon, 07/01/2013 - 18:24 | 3711568 Mark Urbo
Mark Urbo's picture

Better yet, they have taken us from a depression directly to a recovery via a space/time worm hole...

 

Mon, 07/01/2013 - 17:00 | 3711349 Colonel Klink
Colonel Klink's picture

We never truly left recession, essentially we're in a depression which has been papered over and lied about with manipulated information.

Mon, 07/01/2013 - 18:26 | 3711573 Mark Urbo
Mark Urbo's picture

Thanks, that's what I thought...

Mon, 07/01/2013 - 17:03 | 3711355 EclecticParrot
EclecticParrot's picture

Hard to tell the difference between a green M&M and a red M&M when leadership have their hands over your eyes.

Mon, 07/01/2013 - 17:10 | 3711370 TrustWho
TrustWho's picture
Au contraire, Daddy Bernanke has OUTLAWED recessions/depressions under his watch. Oh no, his watch is ending.
Mon, 07/01/2013 - 17:11 | 3711371 youngman
youngman's picture

we are separating the people..those that do..and those that do nothing...the do nothings are getting bigger and bigger every year....and after a few years they never will do anything....anymore.....that is the problem....millions of people that live off of other people....and vote....but the collapse of civilizations has gone on forever...and will again...when people no longer accept the US Dollar for some reason...then its over I think....

Tue, 07/02/2013 - 08:30 | 3713361 Reader1
Reader1's picture

Peak Oil -> Peak Credit -> Peak Employment -> Peak Food -> Peak Freedom -> Peak People ---> Plateau Stoneage?

Mon, 07/01/2013 - 17:22 | 3711388 Zen Bernanke
Zen Bernanke's picture

Economic slowdowns haven't been correlated to stock market sell offs in years and it's been made cyrstal clear which of these events will no longer be tolerated.  It's all good baby, btfd!  Uncle Benny's on the job.

 

 

Mon, 07/01/2013 - 17:31 | 3711421 q99x2
q99x2's picture

Since the FEDs legalized propaganda last year we will never have a recession again -- ever!.

Everything is smooth sailing until you see the tanks rolling down the streets toward you.

Party on. Who's got the acid.

Mon, 07/01/2013 - 18:02 | 3711495 ebworthen
ebworthen's picture

How else can Wall Street crack open and parasitize Mom and Pop retiree's nest egg without engineered crashes and recessions?

I mean, with the FED at their back giving them money for 0.5% at the back door while the FED ensures 1% or ZIRP or NIRP yields.

All those individual and pension nest eggs chasing yield in the Market Casino, which is alternately ramped and crashed with big money front running sector rotation and churn; real people and their retirement money on the tail end getting whipsawed.

Banks and Corporations off-shoring money and getting tax breaks, regular folks bent over coming and going with taxes, fees, and losses.

What a racket.

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