In last Friday’s New York Times, columnist Paul Krugman made some interesting points about the momentum of the current economy. Are things headed up? Or do we still have some painful times ahead of us? To followers of Sir John’s investment strategy, identifying whether or not you have reached the point of “maximum pessimism” is of the utmost importance.
President Obama and some officials with the Federal Reserve have been suggesting recently that they are of the former mindset, with Obama stating that he sees “glimmers of hope.” Krugman takes the opposite tack, laying out four points that suggest that while our pessimism may be indeed heightened (or perhaps deepened is the more appropriate word?), the worst may be yet to come:
- We continue to see indicators like industrial production, housing starts, and foreclosures worsening;
- Much of the good news that we’ve been seeing has been faulty for one reason or another;
- Historically, these downward plunges occur in stages, often taking a second big dip just as we start seeing signs that things are just starting to stabilize (i.e. right around now);
- Even as we start to recover, history suggests that some important metrics, like unemployment, may be slow to improve.
So have we reached a “point of maximum pessimism” yet? This is one of those areas where we most wish we knew exactly what John Templeton might say!