The consensus clearly believes that the worst is now behind us.
In fact, given the bold shape of the capital “V” “recovery” in the S&P 500, I think it’s safe to say that the consensus believes that the economic panic experienced during the fall of 2008 was an overreaction… overblown… even… an opportunity to buy on the cheap!
Why not?… all good “investors” know value when they see it… they know that they should be buying when people are fearful… That’s what Warren Buffets says right? When people get fearful you would be smart to buy… its automatic…
If it were a formula it would look as simple as the following:
people fearful = buy
Of course, there is a corollary to this supposedly “tride and true” investment approach, the selling when people are greedy… Even Warren Buffet missed this simple rule in 2007.
So, how do you tell when people are fearful or greedy?
The answer is that in reality “investors” simply can’t tell… or possibly they don’t even care… the overwhelming majority of “investors”, including icons like Buffet, never know the peaks or the troughs.
So much for collective wisdom.
“Investors” mispriced the dot-com boom… they mispriced the housing-boom and they are mispricing today’s government sponsored bounce.
Back in the fall of 2007 the writing was on the wall… yes there were plenty of greater fools like Jim Cramer or Larry Kudlow or Brian Wesbury on CNBC speculating about “goldilocks” and no recession in sight but the end was in full view for anyone that was inclined to look at things sensibly.
Today, the same sensible analysis should leave one with the same outlook… The American economy is in a very difficult position.
Yes, we have now witnessed the collapse of institutions like Bear Stearns and Lehman Brothers and even the fall of the giants Fannie and Freddie that had been so long and anxiously anticipated.
Yes, we witnessed a classic financial panic.
Yes, we have seen our government go to extraordinary lengths to prevent this natural correction, backstopping, guaranteeing, propping… bailing… borrowing and spending.
BUT… fundamentally the real depressive aspect of this process is only now beginning.
Only now are people realizing that the good days will not be coming back anytime soon.
That their home is worth a quarter to a half less than what they paid for it… that their job could be in jeopardy at any moment… that their income is not really growing or more than likely in decline… that their “investments” have been down for ten years…. that they are woefully unprepared to fund retirement or their kids education or anything else for that matter.
Soon the phony “boom” that occurred in the wake of the dot-com recession will be all but forgotten, replaced by the sense that the bust and turmoil of phony internet startup era and phony Enron/Woroldcom and phony housing sham, phony stock market and phony Wall Street with its phony billionaire bonuses are all related.
And now we have the stock market climbing on the phony government-sponsored recovery.