The Alphabet Recovery
by Richard
Sometimes it helps to reduce complex outcomes to more easily grasped symbols.
Which is how we ended up with the latest shorthand…letters of the alphabet used as symbols to describe the shape of eventual economic recovery.
The rules are simple enough. A downward sloping trajectory refers to a contraction in economic output…ditto…in reverse…for the upward sloping sign.
1. The classic symbol for a recovery is the letter “V”.
This is distinguished by the vertiginous drop in production, which then touches bottom and reverses course on a dime, and skyrockets right back to where it was before the recession hit.
This is found in short, mild recessions that quickly evaporate. No such luck this time.
2. If anything, we are more likely to have a “U” shaped recovery.
This is where it takes time to build a base at the bottom before clawing our way back to prosperity…a feature of lingering recessions.
3. Unless, that is…we end up with the dreaded “L”
If we continue to print money with abandon and total lack of restraint, while propping up Zombie banks and dinosaur industrials, we could end up like Japan in their lost two decades beginning in 1989.
This gives rise to the dreaded “L” shaped recovery. A steep drop, followed by a long leveling off at the bottom. We went through this in the thirties. History could repeat itself.
4. Then there are the “M” and “W”shapes.
Things get complicated when you have back to back expansions and recoveries, as we did in the decade 1999-2009. The tech stock bubble of 2000 became the tech stock debacle of 2000-2002. Followed by a five year bull market, and then the savage 2007-2009 bear market after the debt and real estate bubble burst.
It would look like an “M” if you had recovery, decline, recovery, decline.
Or a “W” if you started with decline, and ended in ultimate recovery.
This volatility unnerves investors, shaking their confidence in the future.
5. My prediction? Not exactly a letter, but the symbol for Square Root: √
A deep decline, followed by a partial rapid recovery, leading into a prolonged period of stasis, as we suffer from the debauchery of indiscriminate deficit spending.
Stagflation. That seventies show. Again.
May 27th, 2010 at 8:12 pm
Great subject to talk about, we agree, as we were just talking about what things can happen in the medicine pharmacy industry. Also we will submit your article to our social network and our twitter, thanks and please post our comment, as we will put a link as well to dig your article. Thanks Will