Take a breather

The financial markets have had several sizable selloffs in the last week. Thank goodness.

Because the second quarter earnings season is essentially over, the emphasis now shifts from responding to the economic-wide insights provided by businesses in their earnings reports, to raw speculation and response to actual economic news. In other words, there is less overall news and more speculation. In this sort of environment, exiting a recession, the importance of actual news is magnified. Earlier this week in the comments section Nate suggested that he would like to see a slow rise out of the recession. I responded that as long as the necessary behavioral and regulatory changes have taken place that I am indifferent to the timing. So have the changes really taken hold? In my opinion, no.

The regulatory changes are especially derailed as public and congressional interest in them wanes. Consumers are drastically changing their behavior and this is a good thing. But my sense is that the financial institutions that led us into this mess have barely changed at all. This is evidenced by the many continued reports of outsized pay packages awarded to employees of these organizations and the continued abuses of power of their executives, too.

All of that said, the financial markets from October ’08 to March ’09 were pricing in a GREATEST DEPRESSION and that just didn’t seem likely. So it was a once-in-a-generation buying opportunity. But now we need to see some real and lasting changes in order to gain confidence in the strength of an ultimate recovery. I am still looking.

Have an outstanding weekend y’all!

Jason


1 Comment

  1. I agree entirely that IF "the necessary behavioral and regulatory changes have taken place" then the economy can grow at whatever speed it can. I think, though, that by virtue of making those regulatory and (more importantly) behavioral changes, the economy will grow slower than in the recent past. Surely a major reason for our little accident was reckless spending/borrowing, and curing that will cause the economy as a whole to grow slower, but for a longer time?

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