This Isn’t a Recession

*** The company that Thomas Edison started cut its dividend for the first time in 71 years. Some analysts think GE, too, could default - thanks to the company's move into the financial sector.

*** Hotels are going into foreclosure too, says USA Today.

*** Dow Chemical is trading at a 24-year low.

*** And the "Great Red Hope" - the idea that China will pull the entire world economy out of a depression - is "pure fantasy," writes William Pesek.

China relies on exports. And the export business sucks. It will be lucky to get through this downturn without a revolution.

*** An Economist headline: "Are Investors Still too Optimistic?"

Our guess: yes. Most of the action on the stock markets is professional buying and selling. The amateurs seem to be largely sitting on the sidelines, waiting for a rebound to get back in.

They still haven't gotten the message. This isn't a recession. There won't be a quick recovery. And the bailout/stimulus plans won't work.

This is depression. It will take years to restructure the economy. And bailout/stimulus plans just slow down the process.

Looking back at the Dow...if you take the market peak of January 2000 as the long-term cyclical top...you might expect an eventual bottom 10- 20 years later...and then a new bull market that would return prices to their peak highs 10-20 after that. Between the high of '29 and the next major high in '66 was 37 years. Between the '66 high and the '00 high was 34 years.

So sit back. Relax. Most likely, we'll see stock prices much lower...for much longer. Look for a return to '00 highs in 2035.

Learn to make a correction your friend. Remember, this is a positive collapse, not negative growth. It is correcting the stupid 'growth' of the bubble years. What really grew during that period was consumer spending in the United States and Britain. And it grew far beyond the ability of Anglo-Americans to pay for it. Because they were spending too much, the whole world economy bent to sell them too much. The Chinese built too many factories. The shippers built too many vessels. The truckers bought too many trucks. The homebuilders put up too many hovels. The retailers expanded too much...the malls were overbuilt...etc. etc. etc.

Now, in this period of positive collapse, all that surplus capacity is being marked down to what it is really worth...liquidated...and restructured.

Give it time, dear reader. Let Mr. Market do his work.
Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

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