Green Shoots

The buzz the past couple of weeks is that the economy is bottoming and that we are beginning to witness "green shoots."  The stock market is experiencing a sustained bear market rally, which historically has been a nine month (give or take a month) leading indicator of broad economic recovery.  But what is the basis for the equities market's "leading economic indicator" status?  

Since the Great Depression, most economic recessions have lasted equal to or less than 12 months. Here we are now, though, in our 17th month of this Great Recession.   Given the inability of the market to value toxic assets, the lack of transparency of the investment banks, and the still frozen credit markets...does "leading economic indicator status" during these strange times even apply here?  Without knowing the economic mechanism behind the historical correlation, it is pretty much useless in giving us any real reason for confidence.   

But don't worry about the great 1-2 year lagging economic indicator: job recovery.  We can count on that!