Let the Good Times Roll

Sort of as a contra-note to the previous post*, I want to remind myself of recovery mathematics.

The economy is bottoming and beginning the process of healing.

There are two points to make. First, the damage inflicted by the severity of the recession means it will take a long time to regain previous economic highs. Second, the YOY and MOM change numbers will look real good going forward.

The great thing (if you can call it that) is that asset prices were re-set when the economy imploded. As such, expected returns going forward will probably mirror the rate and extent of recovery.

In an environment where systemic risk factors and secular headwinds are in play, however, it is hard to see equity markets getting too exuberant, even as positive economic numbers come in. There again, that might be ascribing a level of rationality to the market that it does not warrant.

Depending upon how you look at it, it will be both a lost decade and a growth decade.

*The post was really about risk factors. Always got to keep an eye on the downside.