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Why I believe we’re coming out of the Recession!
By Sean Hyman | June 12, 2009
The average recession is 9-12 months. Now, it’s no surprise that this one has lasted “far longer than average”. But then the question is…how long have the ones lasted that were “far longer than average” in the past?
To answer that question, I think the guys at “Chart of the Day” give a good visual of this: http://www.chartoftheday.com/20090612.htm?T
You will see from their chart of the length of recessions, that there have only been about 4-5 recessions last as long as the one we’re in now…going back to 1900!
When many of those happened, keep in mind that there was no SEC or regulatory oversight. Anyone could leverage stocks 10 to 1 at a whim. They could trade off of inside information, etc. It was a “wild west” back then…where almost “anything goes”.
However, today we live in a different day with the FDIC, SEC, CFTC, NFA…an established Federal Reserve, etc. This helps to keep many of those instances from being in “modern day” and it’s why many of those long recessions were in the “pre-World War II” era.
Since then, for the most part, recessions have been shorter in duration. However, we did have quite a bit of “excesses” that got out of hand on many fronts (housing, lines of credit, derivative trading, the way mortgages were packaged, etc.).
Now, there was one much longer than what we’re in right now…the 1929 recession which turned into a depression.
The government didn’t know then what they know now (not that they know much now, hehe!). In that recession, they actually RAISED interest rates and RAISED taxes and imposed tariffs. These are all wrong moves when you are in an economic slump/recession…so it just aggravated the problem. (By the way, tariffs are wrong all the time, in my opinion).
In this recession, there were stimulus packages, lowered payroll taxes, and rate cuts way early on. This is why I believe it will not be a repeat of 1929.
This is why I also believe that we are actually out of the recession now but the data won’t show it for months to come.
Keep in mind that EVEN WHEN a country comes out of a recession economically, unemployment remains high for a period and job losses can continue. This is because corporations are “skittish” about hiring and they have been used to the “belt tightening” mode. They would rather err to the side of caution than to move prematurely. Therefore hiring ALWAYS lags an economic recovery just as FIRINGS always start AFTER the economic slump has begun and employers don’t realize it at that point.
So the “odds” (from the link above) are in our favor…but more importantly, I believe that we’re coming out for many other reasons.
- Look at the price of oil. It has gone from $33 to $72 a barrel in a short time. How can that happen with huge supplies above ground on tankers all over the place? Increased demand…spurred by an economic recovery that doesn’t show up yet in the lagging economic data numbers.
- China is recovering. China’s numbers have perked up lately due to an economic stimulus package that has been successful and also because of some tax breaks/cuts and subsidies. Their growth is now starting to spill over into places like Australia and New Zealand, as they expand and need goods from these countries. It won’t be long before there’s a “ripple effect” as those
- Commodities are recovering. These only recover because demand is being put on the supply. So there’s more demand out there right now than many think. Demand only comes from growth and expansion, not retraction.
Therefore, I believe we are entering times that are more favorable to foreign currencies like the Aussie dollar, Canadian dollar, New Zealand dollar and next, the Pound and Euro..and probably in that order too. The dollar will likely suffer, as will the Japanese yen and likely the Swiss franc too (vs. these former currencies mentioned).
Sean Hyman
www.forextradingblog.com
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