Are We Happy Yet?

The market (or at least Ed Hyman at ISI) is declaring the recession over. I'm somewhat skeptical. It seems to me that you don't have a 5% decline in GDP over two quarters (and counting) and then turnaround on a dime. There is a lot of momentum built up on the downside. I'm of the opinion that the deleveraging of the economy will weigh on the economy for quite some time (and I just less sure as to how long it will weigh on markets given the 60% haircut taken already). The rally itself is a function of relief that financial doomsday is no longer on the table, the very real possibility that we had significant overshoot on the downside (fear in September, October, November and March was overwhelming), and the fact that many players (hedge funds specifically) are underweight the market (whether short or on the sidelines) and are being forced back into the market. The market is shaking off bad news that seems to be cascading through the system, which speaks to a market looking past the current travails and seeing better days ahead. I would consider myself more in the L shaped recession camp at this point, and think that that optimism is a little premature (make that a lot premature). Also for the record, the reflation trade has worked pretty well off the low, but for my money, inflation (or reflation) is not likely for at least another year or two, or three.