Excerpted from The Elliott Wave Theorist, by Robert Prechter, published September 15, 2009
As Bloomberg reports, economists are now nearly unanimous that the “recession” is over. But I believe they are mistaken in calling it a recession. Since 2000, we have not had two recessions but a slowly developing depression, with rallies. The trend toward depression began in 2000, and it will not bottom for another five to eight years. The economy has been in weak expansion mode for most of this time (this is when commodities had their final runs), but the prosperity of 2000 remains a high-water mark, so the long term trend in the economy is down. Massive credit inflation through early 2008 hid this fact from most observers, because many economic statistics such as GDP were distorted into seemingly positive trends by the collapsing value of the dollar from 2001 to 2008. Certain ratios—see for example Figure 13, a graph of the employment rate—tell the true story. As you can see, it topped when the stock market did, rallied when the stock market did, and fell with it again. Notice that the mid-decade bounce fell well short of a new high, fitting the phony B-wave nature of the stock rally.
As Bloomberg reports, economists are now nearly unanimous that the “recession” is over. But I believe they are mistaken in calling it a recession. Since 2000, we have not had two recessions but a slowly developing depression, with rallies. The trend toward depression began in 2000, and it will not bottom for another five to eight years. The economy has been in weak expansion mode for most of this time (this is when commodities had their final runs), but the prosperity of 2000 remains a high-water mark, so the long term trend in the economy is down. Massive credit inflation through early 2008 hid this fact from most observers, because many economic statistics such as GDP were distorted into seemingly positive trends by the collapsing value of the dollar from 2001 to 2008. Certain ratios—see for example Figure 13, a graph of the employment rate—tell the true story. As you can see, it topped when the stock market did, rallied when the stock market did, and fell with it again. Notice that the mid-decade bounce fell well short of a new high, fitting the phony B-wave nature of the stock rally.
The official economic figures are still useful, because they include the effects of inflation, thereby revealing the willingness of people to issue or take on debt, which is almost always an expression of optimism. Deflation is typically evident when the official figures indicate recession—such as in 2001 and again in 2008-2009. The latest rally in stocks and commodities has accompanied the temporary return of inflation, which in turn has brought signs of an impending official “recovery.” But it is mostly another illusion borne of optimism, as a weak dollar—a result of expanded credit—has once again puffed up the economic data. But this trend will roll over shortly behind the stock market, and we will once again see that the economy is on an undulating toboggan ride to the bottom of the valley.
MyView
15,000 economists in US did not see the crisis coming in 2008 in USA. So, the same lot is saying the worst is over? Common, even my kids wouldn't believe them. However, it is also critical that we read the economy correctly because it will have adverse impact on our investments (esp for USA stocks, commodities, bonds etc). Meanwhile, as we see the depression play out (next 5-8 yrs), the investment profile should be majority cash and there would be many undervalue stocks, commodities, other asset class in USA few years down the road. I guest, the right sequence how the US economy will develop is deflation (first), then only many years later when recovery comes, inflation will follow. Or you can have the boom and bust of inflation in between the long painful deflationary depression. So, good luck to your investments and 2009/2010 most likely will be a repeat of 2008, only this time is more fierce.
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