Does "Less Bad" = "Getting Better"?

Have you ever had a relative/pets in the hospital with a serious illness? Initially it looks like the situation is dire and then for whatever reason the rapid descent they were in seems to relent? Has a doctor in that situation ever told you “they are getting better”? Me either..

Thus is the current economic condition. After successive -6% quarterly GDP figures, estimates are for -2% to -4% in Q2. This is being taken by some to mean the economy is “getting better”. No, it isn’t. It just is not “worsening as fast”. Q1 GDP of -6.1% means it was 6.1% worse than Q4 2008. A drop of anything in Q2 means Q2 was worse than Q1 and the decline continues. Any negative number means the economy is still contracting (worsening). Measuring it isn’t like earnings that are compared for like periods year to year. GDP is a rolling, continuous number.

Think about it like this. It is like having three heart attacks today and only two tomorrow, would the doctor say tomorrow “you are getting better”? Of course not. You still sick and there is still a very large problem.

Now there are those who will say I see the glass half empty. My retort would be that the glass has a leak, just because the water is leaking out more slowly, does not mean it is filling (the analogy is the leaking is the contracting economy and the filling is growth). The half empty argument is one to be had when we approach 0% GDP or only marginally negative.

What is more likely to me is that we are approaching a period of prolonged economic malaise. Very little if any growth, and this is important, from already severely reduced levels. While sitting here is better than a continued decline, I’m not sure is warrants the single best two months performance in the history of the US stock market.

Put in perspective. 40% of this market run up has been due to the performance of financial stocks. These are companies that without Federal aid or adjusted accounting rules would have reported far different results. That does not qualify for “getting better” in my book.

Now, I hope I am wrong. I am not “short” (although I own a tiny bit of SH to take the bite out of any large decline) and talking my book. Just giving reasons I am more hesitant that most to be putting fresh money to work is anything other than commodities or deep value stuff.

Are there some positive signs out there? Sure. I would counter that after the free fall we had at the end of 2008, any economic activity is wonderful news. That still does not equate to “recovery”. I think we may need to get used to the fact that we may be entering a period of a “new normal”. Whether that is good or bad is another debate, I think it may be inevitable.

With that being said, I’m not sure the market recognizes that yet…

Disclosure (“none” means no position):