NOVEMBER 2008

Last Updated Monday, 06 December 2010

The Mother of all Recessions: All Sectors and Regions Stock market’s predictive Ability

a) It appears that we are experiencing the worst recession since WWII. Housing, Banking, Shipping, the Auto Industry, Commodity producers, Industrial and Retail companies are suffering like never before. If the recession started in December 2007 we will probably have the longest and deepest in post-war history, even worse than 1974-75 and 1981- 82 recessions that lasted 16 months. The synchronization of the slow-down in the USA, Europe and the Far East has magnified the problem.

b) Stock markets are notorious for their predictive ability of economic performance. They are compared to a master walking with his dog. The dog (stock market) runs ahead and sniffs while the master (the economy) follows. Their distance does not remain constant but hovers around six months. Therefore, the stock market should again recover before the end of the recession and ahead of other asset classes.

c) Weak economic data provide the rationale for extensive and coordinated government interventions with Monetary and Fiscal Policy. Markets believe that governments win when they intervene forcefully to stabilize. As far as the cost of the stabilization is concerned, it will be assessed later.

In the meantime : Let’s hope for a year-end rally! N. Ritsonis