Bear Market? What Recession?

[otterinbham 0]

http://www.marketwatch.com/news/story/fact...2F7E28CC5B87%7D

What Bear Market? What Recession?

Commentary: The facts just don't add up

By Howard Gold

Last update: 12:01 a.m. EDT May 9, 2008

NEW YORK (MarketWatch) -- If you read the papers, go online, or watch television these days, it seems indisputable that the U.S. is in a recession. Some 80% of the American public thinks so, and so do such investment geniuses as George Soros and Warren Buffett.

Meanwhile, many strategists and analysts talk about "bear market rallies" and other such things.

But there's one problem: There's little evidence that we're in either a bear market or a recession, defined, respectively, as a 20% drop in the major stock market averages and two consecutive quarters of negative gross domestic product growth.

Far from just a technical issue, whether we are or not will set the direction of the market in the months ahead and determine whether the recent rally from the March lows continues strongly or peters out.

So, let's go to the videotape, as they used to say.

The bear market issue is the easiest to settle. Unless the Dow Jones Industrial Average ($INDU:12,732.44, -134.34, -1.0%) and THE Standard & Poor's 500 Index (SPX: 1,387.67, -10.01, -0.7%) ultimately fall well beneath their January and March lows, we just ain't in one.

From its closing peak at 14,164.53 last October the Dow fell 17% to its closing low on March 10th. The S&P 500 slid 18.4% from its October high to its March low. The broadest measure of the U.S. market, the Dow Jones Wilshire 5000 (DWC:, , ) , showed a 19% high-to-low decline. (Using intraday prices it's a closer call.)

In fact, as I pointed out a few weeks ago, the U.S. market has outperformed many of its overseas peers. Want to find a real bear market? Then look to last year's can't-miss superstars, China and India. The Shanghai Composite Index lost more than half its value from its all-time high above 6,000, and the Bombay Sensex Index (XX:1803532: news, chart, profile) declined almost 30% from its peak. That's a bear market.

The reason why the U.S. markets are holding up so well relative to much faster growing parts of the world is that our economy just isn't as bad as the gloom merchants say it is.

Again, let's look at the record.

First, despite the subprime mortgage crisis and a wave of home foreclosures, gross domestic product (GDP) growth was still in positive territory in the first quarter -- albeit an anemic 0.6%. It's not worth breaking out the bubbly over that, but it's not a recession, either.

Then there's the Conference Board's index of Leading Economic Indicators, which turned positive in March, after five consecutive negative months. The stock market, which rallied in April, will no doubt help bolster last month's reading. Unfortunately, the LEI has correctly predicted seven recessions since World War II, but also forecasted five others that never happened.

Weekly jobless claims also are considered a good reference point for the health of the economy. If they top 400,000 for a while, some economists say it indicates a recession.

Despite a one-week spike after Easter, the claims have remained comfortably below 400,000--and last week they fell to 365,000, well below economists' forecasts. Contrast that with the 2001 recession, when they moved sharply above that level and stayed there for two years, even topping 500,000 for a while. We still may get there, but again, no sign of it yet.

And oh, yes, the unemployment rate actually dropped a bit in April, to 5%. It averaged nearly 10% in 1982 and 1983, roughly 7% in 1991-1993 and 6% in 2002-2003--during real recessions.

Which brings us to the consumer. Given all that's happened -- the housing bust, higher food prices, crude oil over $120 a barrel and gasoline above $4 a gallon in some places, it's no wonder U.S. consumers are feeling besieged. (Alarmist pundits and politicians don't help in this area, either.)

So, it's no surprise that surveys of consumer sentiment are bleaker than the movies that were nominated for Best Picture last year.

In early April, the University of Michigan's consumer sentiment index fell to 63.2, its lowest reading since 1982, when, remember, the unemployment rate was twice as high as it is now. (The Conference Board's survey showed similar results.)

Yet plenty of anecdotal evidence suggests consumers may be tightening their belts, but they're not ready to don hair shirts.

Retailers reported surprisingly good sales in April, although people are doing more shopping at Wal-Mart and Costco and less trading up to Nordstrom.

And last weekend, InterShow, the company originally behind Moneyshow.com, celebrated its 30th anniversary by sending all its employees to Disney World. Epcot and the Magic Kingdom were packed to the gills, the hotels were fully booked, and it was hard to get into some restaurants--even in the off-season. And the accents I heard were overwhelmingly American, not British, French, or German.

In fact, Disney reported double-digit increases in theme-park sales in the first quarter, and Richard Kinzel, chief executive of Cedar Fair Entertainment, said amusement-park attendance should hold up well this summer.

And Buffett himself told CNBC that Berkshire Hathaway's Nebraska Furniture Mart did record business last weekend.

So, what does it all mean? Thus far, despite a housing bust, sharply higher oil prices, and many, many warnings, we haven't seen either a recession or a bear market in the U.S. It still could happen, especially if the credit crunch worsens or oil prices head much higher.

But I don't expect that to happen. In fact, I wouldn't be surprised to see oil prices retreat in the short run as we move into the summer driving season and investors realize we've got very high inventories available. And the actions by Ben Bernanke and the Federal Reserve Board to restore confidence and add liquidity should keep whatever recession we do have a mild one -- or prevent one entirely.

Earlier this year I predicted we'd narrowly avoid a recession and a bear market, and stocks would hit new highs this year. Until we see evidence to the contrary, I'm sticking to my guns.

Editor's note: Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his own and do not necessarily reflect the views of InterShow.

[Auburn85 432]

And oh, yes, the unemployment rate actually dropped a bit in April, to 5%. It averaged nearly 10% in 1982 and 1983, roughly 7% in 1991-1993 and 6% in 2002-2003--during real recessions.

Which brings us to the consumer. Given all that's happened -- the housing bust, higher food prices, crude oil over $120 a barrel and gasoline above $4 a gallon in some places, it's no wonder U.S. consumers are feeling besieged. (Alarmist pundits and politicians don't help in this area, either.)

i'm not here to celebrate mediocrity, but to me with all the problems in our current economy, it shows a sign of resiliency that we're not in a recession.

and with the recession talk, alot of folks in the news media like to blur the line between financial hardship and a recession.

That's why after watching all of the news, high gas prices, and so forth, people think and feel we are in a recession. I mean at this point, forget what the word recession actually means.

Can someone recall if there was this much urgency from the media during the 2001 recession? Or heck. was their a deep media depression 15-25 years ago? Why all the urgency with this one?

[otterinbham 0]

And oh, yes, the unemployment rate actually dropped a bit in April, to 5%. It averaged nearly 10% in 1982 and 1983, roughly 7% in 1991-1993 and 6% in 2002-2003--during real recessions.

Which brings us to the consumer. Given all that's happened -- the housing bust, higher food prices, crude oil over $120 a barrel and gasoline above $4 a gallon in some places, it's no wonder U.S. consumers are feeling besieged. (Alarmist pundits and politicians don't help in this area, either.)

i'm not here to celebrate mediocrity, but to me with all the problems in our current economy, it shows a sign of resiliency that we're not in a recession.

and with the recession talk, alot of folks in the news media like to blur the line between financial hardship and a recession.

That's why after watching all of the news, high gas prices, and so forth, people think and feel we are in a recession. I mean at this point, forget what the word recession actually means.

Can someone recall if there was this much urgency from the media during the 2001 recession? Or heck. was their a deep media depression 15-25 years ago? Why all the urgency with this one?

See, I remember a couple full-blown recessions. I remember unemployment in Birmingham around 16-17% in the late 70s and early 80s. Calling this a recession is like calling a case of the sniffles pneumonia. Yeah, you don't feel great, but you're not exactly in bad shape either. Heck, as a percent of the GDP, it doesn't even compare to the S&L meltdown of the late 80s.

[Auburn85 432]

And oh, yes, the unemployment rate actually dropped a bit in April, to 5%. It averaged nearly 10% in 1982 and 1983, roughly 7% in 1991-1993 and 6% in 2002-2003--during real recessions.

Which brings us to the consumer. Given all that's happened -- the housing bust, higher food prices, crude oil over $120 a barrel and gasoline above $4 a gallon in some places, it's no wonder U.S. consumers are feeling besieged. (Alarmist pundits and politicians don't help in this area, either.)

i'm not here to celebrate mediocrity, but to me with all the problems in our current economy, it shows a sign of resiliency that we're not in a recession.

and with the recession talk, alot of folks in the news media like to blur the line between financial hardship and a recession.

That's why after watching all of the news, high gas prices, and so forth, people think and feel we are in a recession. I mean at this point, forget what the word recession actually means.

Can someone recall if there was this much urgency from the media during the 2001 recession? Or heck. was their a deep media depression 15-25 years ago? Why all the urgency with this one?

See, I remember a couple full-blown recessions. I remember unemployment in Birmingham around 16-17% in the late 70s and early 80s. Calling this a recession is like calling a case of the sniffles pneumonia. Yeah, you don't feel great, but you're not exactly in bad shape either. Heck, as a percent of the GDP, it doesn't even compare to the S&L meltdown of the late 80s.

Have we just programmed ourselves that we aren't supposed to ever struggle financially or programmed ourselves that an economy is never allowed to cool off or slow down? It's rediculous.

in 1992 the US population was 250 million. Unemployment rate was around 7.5%

in 2008 the US population is around 300 million. Current unemployment rate is around 5%

The size of the federal government in 1992 is laughable compared to the size of it today.