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Current Quarter 'Crescendo' of Recession, But There's No 'V' in Recovery, Sonders Says

Posted Dec 18, 2008 12:08pm EST by Aaron Task

The Fed is pulling out all the stops - and then some. That much is clear. Less clear is whether the Fed's extraordinary actions will stem the economy's demise.

"Clearly conditions warrant" this kind of dramatic action, says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., noting the Fed has responded much faster than Japan's policymakers after their real estate bubble burst in 1989.

But while the Fed has flooded the system with liquidity, the "velocity of money" isn't growing nearly as fast because banks are hoarding and consumers are reluctant to go deeper into debt (even at historically low rates).

"The confidence and fear thing hasn't been arrested yet," says Sonders, who correctly said the recession began in late 2007 long before the NBER made it official. In part for that confidence factor, she believes the recovery from this recession is going to be slow and this won't be a "V-bottom recovery."

That said, the strategist believes the current quarter will prove to be the "crescendo quarter — the single-worst quarter for GDP decline" and the contraction will get "steadily less negative" after that.

107 Comments

you
Yahoo! Finance User - Thursday December 18, 2008 12:15PM EST

Should we expect an "L" shaped recovery then?

you
onestopbookshop1 - Thursday December 18, 2008 12:16PM EST

I've got an idea. How about the Federal Reserve stop collecting all interest on the National Debt for 6 months. Oh wait, they would have to print more money to pay themselves their extravagant wages. How about another "weekend at Bernies"?

Ryan M
Ryan M - Thursday December 18, 2008 12:18PM EST

Fear is rampant. Look at "NRF" stock. P/E is ridiculous. Yield is silly. But people sell. Fear is the problem.

you
Yahoo! Finance User - Thursday December 18, 2008 12:28PM EST

What letter would you call Japan's recovery?

you
redwoodkape - Thursday December 18, 2008 12:51PM EST

I guess I'm just dense. In 1989 Japan (Government, households, and businesses) had too much debt; it's the same in the US in 2008. Japan cut their rates to effective zero; same in the US. The Japanese government propped up effectively bankrupt corporations; same in the US. Japan weakened any "mark to market" provisions they had so that balance sheets became meaningless; the details are different but....same in the US. Japan did not allow the markets to clear failed enterprises, mortgages, etc; same in the US. Finally, there is no real proof that the Japanese policies actually were effective. Nor, admittedly, is there any proof that they were ineffective. So tell me again: Why are we going to do better than Japan did?

you
just a man - Thursday December 18, 2008 12:53PM EST

Aaron yes they are trying to bankrupt everyone. No decent returns on CD's means that the elderly will have to start spending their principal and won't be able to pass wealth on to their heirs. Also look at the bank bail out, pass out amounts of money you can hardly grasp the size of and they use the money to fund bonuses for all the elitist, yet to hell with auto industry because the working class needs to make big concessions. Its all about, "The New World Order". I hate what this country has become. Bernie Madoff runs a 20 year ponzi scheme and nobody knows anything, but try not claiming your gains on stock trading and let's see how long it would take them to climb up your keyster to take you down. When I opened my business years ago and in our first full year we had sales of 1 mil+ the state awarded me with an audit. One country two sets of rules. I would go to Canada but its just to darn cold up there.

you
just a man - Thursday December 18, 2008 12:54PM EST

Aaron yes they are trying to bankrupt everyone. No decent returns on CD's means that the elderly will have to start spending their principal and won't be able to pass wealth on to their heirs. Also look at the bank bail out, pass out amounts of money you can hardly grasp the size of and they use the money to fund bonuses for all the elitist, yet to hell with auto industry because the working class needs to make big concessions. Its all about, "The New World Order". I hate what this country has become. Bernie Madoff runs a 20 year ponzi scheme and nobody knows anything, but try not claiming your gains on stock trading and let's see how long it would take them to climb up your keyster to take you down. When I opened my business years ago and in our first full year we had sales of 1 mil+ the state awarded me with an audit. One country two sets of rules. I would go to Canada but its just to darn cold up there.

you
just a man - Thursday December 18, 2008 12:56PM EST

Aaron yes they are trying to bankrupt everyone. No decent returns on CD's means that the elderly will have to start spending their principal and won't be able to pass wealth on to their heirs. Also look at the bank bail out, pass out amounts of money you can hardly grasp the size of and they use the money to fund bonuses for all the elitist, yet to hell with auto industry because the working class needs to make big concessions. Its all about, "The New World Order". I hate what this country has become. Bernie Madoff runs a 20 year ponzi scheme and nobody knows anything, but try not claiming your gains on stock trading and let's see how long it would take them to climb up your keyster to take you down. When I opened my business years ago and in our first full year we had sales of 1 mil+ the state awarded me with an audit. One country two sets of rules. I would go to Canada but its just to darn cold up there.

you
jerrblck - Thursday December 18, 2008 01:00PM EST

What Recovery? Don't believe the Gov., Wallstreet, The Fed, Investment Strategists, etc. They lie. There is no relief in sight for years. This country has been severly damaged at home and in the worlds view we are now theives. How long to repair this? It took eight years to accomplish!

you
eolmedo20022002 - Thursday December 18, 2008 01:07PM EST

Redwoodkape, you hit the nail right on the head. We are following the Japanese script to a "T". In psychology we have a name for this: "magical thinking" which is a symptom of a dysfunctional person or system. Exhibit the same behavior again and again but expect a different outcome. Japan has been in and out of depression for near 20 years. I expect the same for the US if we keep the current course of action. It started in 2000.

you
Jon - Thursday December 18, 2008 01:08PM EST

The fear thing is trite. Fear is the result of the problem, it agrivates the problem. The problem is the economy. Fix it and you start alleviating that fear. Who would invest in Chrysler right now? Not many people because they are afraid they will lose. Please are not spending because they are afraid of losing their jobs. Fear won't stop until the government does something to make people less fearful.

scwalton@pacbell.net
scwalton@pacbell.net - Thursday December 18, 2008 01:09PM EST

Learn Mandarin.

you
alan j - Thursday December 18, 2008 01:10PM EST

Hey Obama. I VOTED FOR CHANGE! Mary Shapiro to head the corrupt SEC, To watchdog criminal and RIGGED wall street is a slap in the face. She is an INSIDER. What a joke, change. OBAMA, you are in bed already with WALL STREET. A law enforcement official that wont look the other way and put the hammer down on wall street is CHANGE. I am disgusted, let down, and have been lied to by another politician. AMERICA IS CORRUPT AND RIGGED. Say it OBAMA, oh ya cant now, cause its obvious now you plan to keep corruption as is.

you
Yahoo! Finance User - Thursday December 18, 2008 01:17PM EST

Liz should have said, "The US has WASTED more in 10 weeks than Japan has in 10 years". If we can waste that much money in 10 weeks, I'd hate to see how much we can waste in 10 years. However, the outcome will be the same, except we will have printed ourselves into default. Then what happens?

you
darias459 - Thursday December 18, 2008 01:20PM EST

I guess the first installment of the 700billiion bailout will be used in part to help the financials pay these exuberent bonuses and taxpayers outside of this group are losing there jobs and would get stuck with the outgrageous expense ? What is the logic in all of this. ? I thought one of the purposes was to stop the financial from hoarding the money and start running is primary business of lending again. ? Can someone please explain. ?

you
just a man - Thursday December 18, 2008 01:20PM EST

The Yahoo web site has issue. Is Jerry in charge of writing code now?

you
fidelityunionsquare - Thursday December 18, 2008 01:22PM EST

Community currency or Bolshevik revolution for the bankers. Decide.

you
Yahoo! Finance User - Thursday December 18, 2008 01:23PM EST

we expect an "I" shaped recovery

you
Yahoo! Finance User - Thursday December 18, 2008 01:24PM EST

Is an automaker "Orderly Bankruptcy" similar to "Assisted Suicide"? Hell no, let them die on their own!

you
Yahoo! Finance User - Thursday December 18, 2008 01:29PM EST

I've diversified my stocks. Some have rifle barrels and some have shotgun barrels.

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