Is there something different about this recession?

Question

Historically, the U.S. economy has dipped into many bear markets and recessions. But is there something different about this one that makes you think the market will never recover?

Answer 1

naw the market always recovers over time. This time things happened a little differently from past recessions but there are other factors that may make it take longer to recover and people making money again.  One thing that will help is if american businesses take back manufacturing and building business for the home market rather than out sourcing everything.  it is hard when costs of things are so high in the home market (labor for one) and out sourcing means much lower costs in many areas.  

Now with high fuel costs there may be a resurgence of made in america.  this will make the economy get back on track.

Answer 2

Yes !! Negativism is a start. Is this a recession where many economic factors are positive, employment is still high, retail sales are level and people are still vacationing although closer to home? The market may never recover but it has been overinflated for several years now and driven more by the speculators than the investors. This is also true of the petroleum problem fueled by speculators.

Answer 3

Yes, the part that is different is that we are all in it.

I know that sounds funny at first, is true, but sometimes recession are limited in scope - such as the .com bust The markets fell for 2 years from 200-2002; however during this time the housing market boomed as money moved out of stocks and into easy mortgages and as interest rates were falling.

Also note that this is the second economic down turn this decade.

1st 2000-2002

2nd 2006 ......

Today with the housing bust, commodity inflation from (grains and oil) EVERYONE is being effected.

edit:

I have to respectfully disagree with some of the other posts.

Which economic factor is positive?

Employment is still high?

Retail Sales are level?

Oil prices driven by speculators?

Unemployment Report

"Total nonfarm payroll employment continued to trend down in June (-62,000). Since peaking in December 2007, payroll employment has fallen by 438,000. In June, job losses continued in construction, manufacturing, and employment services.

In June, manufacturing employment fell by 33,000. Job losses were widespread throughout the industry, with notable declines in fabricated metal products (-9,000), printing and related support activities (-6,000), and wood products (-6,000). Employment in motor vehicles and parts edged up by 6,000 over the month, largely reflecting the return of workers from strikes and related shutdowns. Over the past 12 months, manufacturing has lost 353,000 jobs. "

Source: US Dept of Labor, Bureau of Labor Statistics

http://www.bls.gov/news.release/pdf/emps...

State:

California Employment Report: Confidence Index Reaches Record Low

http://www.reuters.com/article/pressRele...

Florida Employment Report: Overall Worker Confidence Hits a Record Low, Optimism in Ability to Find New Job Rises

http://findarticles.com/p/articles/mi_m4...

other notes

Unemployment sinks to 5-year low (10-06)

http://money.cnn.com/2006/11/03/news/eco...

Food & Retail Sales

Source: US Census Bureau

http://www.census.gov/marts/www/retail.h...

http://www.census.gov/marts/www/marts.ht...

Up slightly, but most people attribute this to the "stimulus checks."

http://www.marketwatch.com/news/story/re...

Oil:

Oil is Not Driven Just By Speculators

http://www.airlineforecasts.com/139_oil_...

http://news.xinhuanet.com/english/2008-0...

see additional posts that discusses oil, low US Dollar, high global demand by China and India, low interest rates, supply disruptions (Nigeria), war threats (Iran-Israel) (all impacting high oil). Please see 'Net Advisor' posts on oil.

The CFTC stated on CNBC-TV last month that 75% of all oil contracts are for physical delivery of oil. 25% of oil contracts are for cash delivery. I would argue that the majority to movement in the day-to-day prices in stocks are done by speculators.

Speculation.

Does speculation occur in oil? Yes, and with every tradeable instrument.

In my daily real time viewing of the financial markets, and I have been following oil for 19 years, I am seeing what I believe in an increase in oil speculation now caused by the MEDIA telling everyone that oil prices are going up and up and up. People including pension funds, endowments are jumping on the oil band wagon. Why? It is the only real area that is increasing in value. Everything else is under pressure.

One should note that trading oil futures contracts is not like buying a stock. You have to qualify to trade (not easy), have lots of money, experience, understand futures margin requirements, and the risks are huge (you could be leveraging 100-1. Leverage works both ways).

I have been advising clients over the past year that IRAN is the biggest threat to middle east stability and to higher oil prices. Iran has threated to wipe out Israel, has test fired numerous medium and long range missiles as a show of force, threated to attack US ships in the Gulf, threatened to attack US targets oversees and it's allies; threaten to attack oil targets in the Gulf, disrupt oil flow from the Strait of Hormuz, where most of the world gets oil shipped from.

http://www.reuters.com/article/newsOne/i...

http://www.eia.doe.gov/cabs/World_Oil_Tr...

http://www.google.com/search?hl=en&q=ira...

These are real threats, and the issues are serious. All this will impact oil and the economy.

Ever consider that Iran's threats of war is driving oil prices high (you betcha), and who profits by this? (Iran - the 3rd largest oil producer in the world).

http://www.infoplease.com/ipa/A0872964.h...

The economy will recover one day, but it will quite some time. When is anyone's guess.

Answer 4

Most recessions are caused by temporary factors that eventually work themselves out.  

The thing that's different about this recession is that the factors causing it are so huge and seemingly insurmountable.  The amount of debt and financial obligations in the economy is of historically huge proportions.  And many individuals, companies, and even governments simply don't have the resources to honor and discharge all of their financial obligations.

One way to resolve this situation would be to have a one big, huge economic crash where all the debtors who are unable to pay their debts default on their obligations and let their creditors take their losses.  

This won't be nice.   A lot of people would loose their faith in the economic system.  And perhaps a period of depression would follow.  But eventually ambitious and inventive people will get over their fears and restart economic growth from a clean slate.

But the US government is trying its best to prevent this from happening.   Which means that the unwinding of all the debt obligations and bankruptcies of those who cannot pay will take a long, long time.  And there is no way of knowing how long it will take.

I think the US stock market will have to go down a lot lower before there will be any significant recovery.   And it's not just because of the current economic problems.  

Not so long ago I've read an article which says that for the last ten years, the return on investment in S&P500 companies has been less than zero.  And a part of the reason for this is that the dividends companies pay to their shareholders are at historically low levels.  While the compensation for company executives has risen to stratospheric levels.  Some executives literally get hundreds of millions of dollars.

As it stands now, investing in stocks for the long term doesn't make sense.  You would make more money by investing in bonds.   The only way to make money in stocks is to speculate by buying low and selling high.  People have to time the market.  Which is risky and not so easy.  And without a lot of long term investors, the stock market will most likely stay in a trading range or perhaps even go down.

Answer 5

It is not just different this time, it is different every time.

One big change though is we have transitioned some from a manufacturing economy to a service economy.

With a manufacturing recession demand fades then you have large layoffs as inventory is used up and then it recovers and they hire again. The result is high unemployment and a market that falls. But the recovery is also fast.

A service economy is different. It is more dependant on money circulating. There is no inventory only lessening demand. Service recessions are thought to be more shallow but much longer and much slower to recover.

And these days the incomes of the rich over the rest is becoming much greater. The lack of growth of the incomes in the majority over this decade hurts demand.

The majority don't have as much money these days.