Capital Commerce

Ed Yardeni of Oak Associates is one of my favorite financial thinkers, always the optimist. But he just threw in the towel on this expansion in a note to clients called "Recession Now" (my boldface):

I think we are falling into a consumer-led recession. I've been fighting recession and mid-cycle slowdown scenarios for the US since 2003. I've been saying don't bet against American consumers so long as employment is growing. I've argued that financial crises tend to be buying opportunities if the Fed responds by easing aggressively and averts a recession. Now, I think that the latest business cycle peak probably occurred in January. February was probably the first month of the recession. Real GDP is likely to be down during Q1 and Q2 by 1%-2%, rather than up by 1%-2%, as I previously predicted. I think the economy will recover during the second half of the year, assuming another 100bps cut in the federal funds rate soon.... The risk is that the recession exacerbates the credit crisis despite further interest rate cuts by the Fed. I have been rooting for the Muddling Through scenario. However, the credit crisis continues to worsen and has become a full-blown credit crunch, which is depressing the real economy.... Consumers rarely deepen or prolong recessions, especially when the Fed is easing. Then again, Fed Chairman Ben Bernanke warned Congress last week on Thursday that unlike the previous recession, "Now consumers are taking the brunt." Bernanke wasn't very reassuring when he said that falling home prices were creating a "much broader set of issues" than the bursting of the tech stock bubble at the start of the decade. Back then, lowering interest rates boosted housing's positive impact on the economy and household wealth. Also back then, the federal budget was in surplus and inflation was lower, Bernanke observed. Now the Fed would be delighted if lower interest rates would just stop home sales and prices from falling. So would I.

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