We last saw swine flu in 1976, so we suppose it's fitting that this morning's first-quarter 2009 advance GDP estimate of -6.1 percent (annualized rate of change), in line with our OBA forecast of -6.1 percent but well-below a consensus of economists who expected a -5.0 percent decline, confirms the first three-consecutive-quarter fall in economic output since 1975. Wait, there's more...4Q2008 GDP at -6.3 percent and 1Q2009 GDP at -6.1 percent are the worst two-quarter showings since the 1950s, and to us somewhat effectively trample those green shoots some in the Washington, D.C. area think they have seen sprouting recently.
All this time travel, while both dizzying and tedious, means, yes, this time it's different. Even acknowledging that indeed this time it's different is different for we consistently have been told for decades such idle boasts were Wall Street's most dangerous words. So this time it is different - a balance-sheet recession, a debt-deleveraging deflationary downturn really not witnessed since the 1930s. More bedrock of economic and investment dogma crushed into gravel and swept away by the raging torrents of cause and effect.
Cause: too much debt/leverage created during "The Great Moderation" allowing the world to pre-consume years' worth of future goods and services. Effect: massive voluntary and involuntary unwinding of said debt/leverage resulting in a dearth of future years' consumption as global supply and demand are re-set to lower levels, an equilibrium is reached and the process begins anew.
The ephemeral green shoots have been seen by those so hopefully inclined as signs equilibrium already has been reached 16 months into this worst of recessions since WWII and the process now begins anew to rebuild the economy. We remain unconvinced, however (although gladly we would be proven wrong), and yet believe the global economy has more downward re-adjusting to come on the basis the balance-sheet repair and debt-deleveraging of many large financial institutions, many businesses and many individuals remains a process in its early stages - that, indeed, this time it's different.
For more information, please contact Keith Hazelton, keith@oba.com, (405) 424-5252, ext. 106.
