Tuesday, December 1, 2009

Bears Not Hibernating Yet

Nouriel Roubini, who a year ago correctly forecast soaring unemployment and ex-stimulus a very weak economy, but who made the mistake of forgetting that stocks rise the most when the Fed is the easiest, and the Fed is the easiest when the economy is the worst, has resurfaced with some aggressively bearish comments (while avoiding guessing the course of stocks). In a pair of pieces, he lays out the economic bear case and argues for muscular stimulus: stimulus that really stimulates. A tale of two American economies is the longer piece; The worst is yet to come: Unemployed Americans should hunker down for more job losses is shorter.

They are brief enough that there is no point excerpting from them. If you read them both, please don't slit your wrists.

Meredith Whitney, who covers financial companies and was rated #1 in her category this year by the WSJ, agrees with Dr. Roubini that the official data are overly optimistic and that small business is in an under-recognized depression. She also feels that "The banks are still grossly overvalued".

Along with David Rosenberg of Gluskin Sheff, A. Gary Shilling (of his own firm), and some bloggers such as Mish, there are several people who consider themselves realists with very strong track records who dislike the "Accentuate the Positive" spin they perceive all around them in what continue to be extraordinarily difficult economic times.

While they differ on policy matters, my observations of the real world is that this weak economy is vastly worse than the 1990-1 or 2001 downturns, and is so different from the 1980-3 downturns that comparisons are difficult.

Almost every day, the consistent message of the markets is that money-printing is behind the "surge" in the economy; gold outperforms the S&P 500 almost every day lately. One day this will stop, and perhaps today was the last such day for a long time, but the Fed and the pros likely agree with these bears. If stocks were truly undervalued, there would not be much demand for 12-month paper issued by the U. S. Treasury at one-quarter of one percent interest.

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