Schwab’s Chief Investment Strategist, Liz Ann Sonders declared the recession to be over this week. When I first saw the headline, my thought was “here’s another financial talking head trying to create news”. I listened to the interview anyway, and my conclusion is that Liz Ann is extremely smart (a lot smarter than the interviewers), and may actually be right. Liz Ann was one of the first people to call the beginning of the recession in 2007.
She was not saying that everything is now rosey and stocks are going to go through the roof. She is looking at leading economic indicators and technical indicators and concluding that the recession probably ended in April or May, when things became “less bad”. One of the indicators she looks at, which has an almost perfect track record, is the index of leading economic indicators (e.g. money supply, new factory orders) divided by the index of lagging economic indicators. This indicator measures essentially the rate of change in the economy and tends to signal the end of recessions when it turns positive. It turned positive in April.
One of the key statements Liz Ann made in the interview that I completely agree with was that things need to get less bad on their way from bad to good, and once everyone is in agreement that the economy looks good again, we’re probably closer to the next recession than we are to the last one. This doesn’t mean you jump into the market with both feet because the market happens to be low. The fact that the market could either go up, down or sideways NEVER changes. However, waiting until the economy is clearly good is probably much more risky than investing when the economy is less bad.
Original source: http://veripax.wordpress.com/2009/06/19/is-the-recession-over/
