Tuesday, September 1, 2009

Are We Going Into A Depression?

Please note - some might find this post disturbing

I would like to provide an overall update as to my thoughts on our current economic situation.

First, however, a brief recap of what others think of our current economic situation (details of which can be found under the "Economic Forecasts" and "Stock Market" categories on the right-hand side of the home page):

-Practically all economists, federal officials, companies and investment professionals are confident that we have "seen the worst" of the economic damage, and are heading toward a gradual recovery

-Only a small handful of economists think even a "double-dip" recession (further economic weakness before a lasting recovery) is possible. None that I have seen are forecasting an economic dropoff that would lead into a Depression.

-Corporate Earnings growth is projected to be robust through (at least) 2010

-The stock market (as seen by the S&P500) is above 1000 - after having a very strong multi-month rally

Given the above, how likely is renewed economic weakness and how strong could it possibly be? What is the potential downside?

My analysis and overall thoughts on our economic condition, and likely future outcome, has not changed. Although I am an optimistic person by nature, my overall analysis of our current economic condition does not engender optimism. I do not believe that we have even come close to having seen "the bottom" as far as economic weakness is concerned. Furthermore, I see our future economic situation as one that holds great peril and rather severe potential downside. I do believe we are heading into what will inarguably be classified as a Depression.

The reasons for my conclusions are many. In general, we face an array of complex and deeply embedded problems. For those who want a more specific background of my thoughts on this matter, I would recommend reading the articles I have written (which can be found listed under the Directory Of Articles) and the various blog posts on this site.

In particular, I would like to call attention to my four-part Depression series that started with the June 22 post.

Since I wrote the article "A S&P500 Target of 100?" discussed in the last post of that Depression series I have used the S&P500 price of 100 as a type of potential endpost, and have been thinking of what type of probabilities to assign to its likelihood of occurring in the near future (a two-year window since it was written). Most people would think that such a price target is simply impossible. However, since I wrote the article in early March, the probabilities I have assigned to it have increased, unfortunately.

Our current and future economic conditions are of great complexity. As I have previously stated, I do not want further economic weakness to occur and I do hope that my analysis and conclusions regarding our economic course are completely incorrect. My overall desire is for us to attain what would be considered Sustainable Prosperity.


For those who haven't yet read this site's disclaimer, please see the "Special Note"

SPX at 1020.62 as this post is written

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