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Jon Markman

SuperModels4/23/2009 12:01 AM ET

Investors, leave hope for dead

Continued from page 1

[Related content: stocks, retail, Nike, ETF, Jon Markman]

Are these pros and cons really balanced? Well, Rod McKnew, a banking analyst at boutique broker-dealer Newedge, who's been right on the crisis for the past two years, wrote this week in a note to clients that, according to his data, 16 key economic indicators are showing weakness. "Some balance," he concludes, adding, "The north wind keeps coming in about midnight and cutting down the green shoots."

Some of McKnew's weaker numbers: consumer confidence, the unemployment rate, average hourly earnings, the Producer Price Index, industrial production, capacity utilization, housing starts and building permits.

If you get right down to it, it's not hope versus some ethereal despair but hope versus what's really happening. Larry Jeddeloh, the chief analyst at TIS Group in Minneapolis, observed that virtually the exact same language of shoots and glimmers appeared in 1931 just before the second wave of the Great Depression. And it was the second wave that was the killer then, not the first (the first merely took down the stock market).

The first wave of our current recession was actually far worse, and faster, than the one of the 1930s, Jeddeloh says, considering that the CPB Netherlands Bureau for Economic Policy Analysis estimates that world trade fell 41% from November to January and that over the past year industrial production has fallen 31% in Japan, 19% in Germany, 17% in Brazil, 13% in Russia and 11% in the United States -- staggering blows from which economies don't just get up and walk away.

Crash helmet in hand

Sigh. I hate to leave you on such a gloomy note, so here's some data to optimize your optimism. ISI analysts figure the odds are low but rising that U.S. gross domestic product will come in positive in the second quarter. The potential will increase if the following five gauges keep improving: unemployment claims, the manufacturing purchasing managers' index, the price of copper, stock prices and the money supply.

And the good news, if you really feel like exercising your American right to believe in unicorns and mermaids, is that the ISI analysts figure there's a 70% correlation between the depth of a recession and the pace of recovery. Using a mathematical construct called regression analysis, ISI says that a GDP recession of 3.7%, which is where this one is likely to average out if it ends soon, could be followed by a 7.8% gain in the first year of recovery. That would shock a lot of people primarily because the exits from the past two recessions, which were mild, were quite slow.

The best analogue of the recent past would be the 6.9% recovery out of the deep 1957 recession. The mild 2001 recession, with a 0.2% loss in GDP, worked out to a 2.2% estimated recovery using ISI's math, and it was actually 1.9%. The 3.7% recession in 1957 worked out to a 7.8% estimated recovery versus 6.9% in reality.

Personally, I'm hoping we dodge the bullet. But professionally and practically, I'm keeping the flak jacket on and the crash helmet at hand.

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Jim Jubak © MSN Money
A bad economic sign
Capital One reports that bad credit card debt hasn't peaked. How can the economy get better, MSN Money's Jim Jubak asks, if more people are losing jobs and falling behind on bills? (April 22)

If you want to go the first route in the stock market, buy the best of the recovering retailers and mall operators that are running from low levels lately, such as Lululemon Athletica (LULU, news, msgs), Chico's FAS (CHS, news, msgs), Nike (NKE, news, msgs) and Kimco (KIM, news, msgs), or just the exchange-traded retail fund SPDR S&P Retail (XRT, news, msgs).

If you want to go the other way, just hang tight with cash and nice-yielding bond ETFs such as iShares Barclays MBS Bond (MBB, news, msgs) and PowerShares Insured National Muni Bond (PZA, news, msgs). If you're not sure, sort of a mix of hope and concern -- I think that makes "cope" -- mix and match with a heavier weighting with the group you feel more strongly about.

Meet Markman at The Money Show

MSN Money columnist Jon Markman will be among dozens of experts on hand at The Money Show in Las Vegas, May 11-14, to help you learn what you need to know to make smart investment decisions during the market crisis. Admission is free for MSN Money users.

To register, call 1-800-970-4355 and mention priority code 012660, or sign up online.

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At the time of publication, Jon Markman owned shares of the following exchange-traded funds mentioned in this column: iShares Barclays MBS Bond, PowerShares Insured National Muni Bond and SPDR S&P Retail.

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