MSN Money video

Video on MSN Money
This video requires the installation of the free Adobe Flash Player. Click here to download.
More video on MSN Money . . .
Bill Fleckenstein

Contrarian Chronicles8/3/2009 12:01 AM ET

Recession has ended, but pain hasn't

We like hearing experts say one sector or another has hit bottom because we take it to mean better times lie ahead. It's time to rethink that assumption.

By Bill Fleckenstein
MSN Money

Recently I have been struck by the number of talking heads declaring that the housing market or economy has bottomed, along with their expectation of what comes next -- i.e., the recent Newsweek Magazine cover: "The recession is over. Good luck surviving the recovery."

To state the obvious, the reason there's always such an intense focus on the "bottom" is because of the implication of what comes next: better times.

I think that in most people's minds, it is assumed that after something bottoms out, the recovery will be rather strong, if not V-shaped. Not necessarily.

Throw out the rule book for this recovery

The economy stopped getting worse sometime during the first quarter. It has benefited from massive amounts of money printing, inventory restocking and better business prospects in Asia. But I think the most important point for folks to understand is that it's not business as usual.

The United States is going through something unprecedented: The collapsed credit/real estate bubble (which followed the collapse of a stock bubble), and the attendant economic consequences (not the least of which has been the distinct inability to create jobs on the heels of a brutal bloodletting), have prompted a massive outpouring of quantitative easing.

Of course, further complicating the handicapping of future economic activity is that the once-radical view that unemployment is intractable has now become mainstream, almost ensuring some unforeseen wrinkle.

None of this was surprising. Given what occurred in the credit bubble, many of us expected just such a horrendous economic period. But that has been fought with (also predictable) money printing on the part of the Fed and other central banks, which is what's called quantitative easing.

So what rages today is the battle between two epic forces: the credit collapse and money printing. The battle has many ramifications. For the financial markets, the quantitative easing and a few less-bad-than-expected economic developments have helped produce the rallies just described. But that does not necessarily mean that a much better economy and job creation lie dead-ahead.

And, after all, we haven't even begun to deal with the implications of the funding crisis I've discussed more than once.

Thus, I would urge folks to be slower to leap to conclusions and more open-minded about the potential economic and financial road map, keeping in mind the forces at work in the background. Their ramifications will be with us for quite some time.

If I had to give one side of the battle the upper hand, I'd give it to money printing, as I have with my investments.

An SEC (belatedly) full of fire and brimstone

Regular readers know that selling stocks short has been part of my investment strategy. Which brings me to the "new" Securities and Exchange Commission rules.

Essentially, these are the rules it introduced last fall aimed at continuing a crackdown on naked short selling. (Until then, the SEC had never bothered to enforce the rules regarding this illegal practice. Sound familiar?)

To which I say: better late than never.

Video on MSN Money

Get ready for the (slow) recovery © The Wall Street Journal
Get ready for the (slow) recovery
There are signs the recession may end in coming months, but the U.S. economy's recovery is likely to be so painfully slow that many won't feel the difference. David Wessel reports.

However, I would like to voice my objection to the innuendo that somehow short-sellers drive prices lower. Lower share prices are a function of the business, the economy, bad luck and/or mismanagement -- not short-sellers. What short-sellers often do is to warn of impending problems. How many in government, corporate America or the media at large do that? It's time to place blame where it's due, not where it's convenient.

Continued: 'I do,' says Yahoo

 1 | 2 | next >

Rate this Article

Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowHigh