November 5, 2011, Bob Brinker and Liz Ann Sonders: No Recession

November 5, 2011....Bob Brinker is dead set against recession-bears, like Lakshmann Achutan (ECRI).  Bob Brinker has said that those who predict an upcoming recession are off base and "tagged out."

Liz Ann Sonders Senior Vice President, Chief Investment Strategist
Charles Schwab & Co., Inc., agrees with Bob Brinker.  From her article "Born in the USA: A Look at What Could Go Right:

Key Points
* The expectations bar has probably been set low enough to be easily hurdled as the big market rally may be indicating.
* Not only is recession risk fading in the near term, a very positive
longer-term story is emerging, even though very few are in tune (yet).
* Investors have gotten used to digesting worst-case scenarios … maybe it's time to ask what could go right.

 In her November 2011  Charles Schwab Market-Snapshot Presentation, Liz Ann Sonders makes the case for the bulls and bears:

The Bulls’ Case
• Still-strong consumer-driven growth in emerging economies
• US real GDP rebounding nicely from first half
• Exceptionally low expectations bar
• “Operation Twist” to lower borrowing/mortgage rates (help for refinancings)
• Strong corporate profits / $2.1 trillion cash on corporate balance sheets
• Leading indicators for job growth remain healthy
• Lift to auto sector from Japan’s recovery
• Credit markets on the mend; lending starting to grow again
• Tax reform on table
• Commodity prices down from peak; global monetary tightening ending
• Inexpensive valuation on forward earnings
• Extreme investor pessimism (contrarian indicator)

  The Bears’ Case
• “Stall speed” in economy … elevated recession risk
• Eurozone debt crisis … shaky plan?
• US debt crisis … nasty political scene
• Debt deleveraging cycle depresses growth and lasts a long time
• Volatile stock market becoming catalyst vs. discounter?
• Fed out of traditional bullets, hence “Operation Twist” (pushing on string?)
• Anemic jobs and real estate recoveries
• Slowing global growth
• Corporate margin pressure and weakening forward earnings guidance
• Confidence crisis = self-fulfilling prophecy
• Fiscal restraint draining economic growth

* Market Suffers Around Recessions: Biggest Hit Came Around Last Recession, Hence Elevated Fear

 * A Lost Decade … and Then Some But Not Everything Has Been Flat Since the Late-1990s

  * On Forward Earnings, Stocks Are Very Cheap Barring Recession: Estimates Have Likely Been Cut Enough

See more of Sonders' great graphs that show each of the following topics here:

* A “Square Root” Shaped Recovery Unfolding? Our Initial View When Estimating Recession Was Over in Mid-2009
* Real GDP Rebounding From Downward Revisions: Nominal GDP Actually Higher For Many Quarters, But So Was Inflation
* Corporate Profits Revised Up By Whopping 15%: Bright Spot Among GDP’s Revisions (Helped by Higher Inflation)
* Investment Has Undershot Corporate Earnings: Means Are There, But Not Motivation … Yet
* Corporate Profits on a Tear
But Secular Impediments to Lower Unemployment Rate Remain
* Education (or Lack Thereof) Matters As of 9/11. Source: Department of Labor, FactSet. Spread Has Never Been Greater
* Unemployment Rate Lags Big Time Recent Stickiness Troubling But Not Unprecedented
* 90% Debt/GDP = Threshold Above Which GDP Suffers: US Federal Debt Presently 96% of GDP Eurozone Leaders Agree to Preliminary Strategy
* Private Sector Began Deleveraging in 2008: But Public Sector Deleveraging is Just Beginning
* Consumers’ Stresses on Volatile Path: Lower Commodity Prices and Liabilities Helping Recently
* Market Suffers Around Recessions: Biggest Hit Came Around Last Recession, Hence Elevated Fear
* Investor Confidence Got Crushed by Market’s Rout: “Wall of Worry” Remains But Sentiment is Chasing Rally

Watch the complete Liz Ann Sonders' video  presentation here

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