July 28, 2009

There's good news, and there's bad news

The good news is the index of leading economic indicators is signaling that the recession is nearing its end:

The index of leading indicators, which signals turning points in the economy, is rising at a rate that has accurately indicated the end of every recession since the index began to be compiled in 1959.
The index was reported this week to have risen for the third consecutive month in June, and to have risen at a 12.8 percent annual rate over those three months. Such a rise, pointed out Harm Bandholz, an economist with UniCredit Group, “has always marked the end of the contraction.”

Mr. Bandholz said he expected that the National Bureau of Economic Research, the official arbiter of American economic cycles, would eventually conclude that the recession bottomed out in August or September of this year.

The bad news? An end to the recession doesn't mean a healthy expansion is waiting around the corner. In fact, there are a number of reasons why a strong recovery is unlikely. This well-written piece by ~~John Mauldin~~ David Rosenberg explains them each in detail, but the short-list includes the likely absence of consumer spending (normally a driver of expansion), a still-ailing financial sector, revenues that continue to come in way behind those of a year ago (even if improving on the even-worse rates of the past two quarters), and a giant hole to fill on the jobs front.

Perhaps not surprisingly, then, Jeremy Grantham now says the market is trading at a Boring Fair Price.