Monday, October 5, 2009
There is no 'V' in Recovery
Economist Nouriel Roubini told CNBC today that the recovery is not going to be 'V' shaped, rather a long, slow 'U' shape. He hinted that the "wall of liquidity"created by the government's stimulus package is causing a run on assets and boosting the stock market. The danger in this is that it may also be boosting food commodities and oil prices. It is clear to most interested onlookers that the massive infusion into the financial services companies gave them the opportunity to make some fast cash. What is less clear is whether the 'virtual recovery' caused by the stimulus is strong enough to weather the storm. (Fox News even suggests that there is talk of a third stimulus package.) Oil prices seem stuck at or around $70 bbl fuelled in part by an increase in consumer spending in August and in part by glowing, bullish reports from certain investment banks that seem to miraculously appear when the prices dip. My take on consumer spending - at least in New England - is that the weather was so awful until August that no one went on vacation until then. When they did, it was sunny and gorgeous and it was a crime not to buy lobster rolls when they were so cheap. Vacations aside, there is little indication that Americans are rushing back to their profligate ways. The latest Dilenschneider Group report put it this way: "Regardless of when the downturn ends, expect the recovery to be very slow." Both Dilenschneider and Roubini are concerned that unemployment will prove to be the straw that breaks the camel's-back of the recovery. Throw in higher oil prices as investors grow increasingly exhuberant and you could see a double dip after all.