Recession or Resetion?
I wrote last summer that the Dow would not rise much above 17,300 and then eventually drop from that level into a recession. We see markets dropping now, but are they dropping into a recession or a resetion?
What is a resetion? That is when the markets “reset”. Stock values have been high so at some point they need to come back to reality. Many companies have been overvalued. Now is the time to reset stock values.
The difference between a recession and a resetion is that a recession hits the whole economy and a resetion hits certain markets and business values.
In a recession and a resetion, many companies are challenged to survive and some end up fading away. Ultra-low interest rates have kept inefficient companies alive which have kept down wages and productivity. The survivors come out stronger. Productivity rises after.
We will see at least a resetion of the stock markets. But will we see a recession in the whole economy? Well, there is a need for a resetion of the whole economy too. Rent prices are pressuring the budgets of many people. Inefficient companies need to be weeded out. Asset prices beyond stocks need to reset too. So a resetion (resetting) of the whole economy could result in some healthy changes.
Okay. I’ll bite. Why isn’t there a third option? Full on deflation? Which would be a much more serious consequence since it’s not clear what might be done about it.
The S&P 500 and other stock indices are reflecting to investors revising down their earnings expectations and says very little about prospects for US growth. Domestically unit labor cost is rising much faster than prices. Much of this is oil, but profits weakness and margin pressures are spreading to other sectors. Moreover, about half of S&P 500 profits come from abroad and the strong dollar and weakness in other economies — not just China — and have a major negative impact on foreign earnings. We can easily have a profits recession for the S&P without have a real domestic recession.
A recession is when your wages go down, and a “resetion” is when your stocks go down?
Your analysis is spot on. We are in a reset mode that was from some over valued stocks. It use to be said that the country goes as GM goes. today it is now more the country goes as China goes. We are lucky that they have placed the circuit breakers into the system as it has taken much of the panic out of the system that was always there. But we still badly need Glass Stiegill restated. Please go see Wallstreeton parade.com for much greater analysis and opinions from Pam Martens.