A hedge fund manager and I had a flurry of e-mails over the weekend, prompted by various “The recession is over” declarations, particularly one lauding Timothy Geithner’s skills as a forecaster. I think our shared view is that to call this recession over is tantamount to calling an operation successful when the patient is tethered to an oxygen tank and needs 24 hour nursing care. In other words, the designation may be technically correct, but also shows how low the threshold of “success” is considered to be.
One of his comments:
It’s weird, but even here in the heart of our wealthy suburb, and people APPEAR to be as affluent as ever, but scratch beneath the surface, and many are experiencing money strains. It’s like we just continue extend and pretend and then people use the recurrence of bad habits as a sign that Geithner was right. It’s nauseating. And somehow 10% unemployment doesn’t matter any more!!???
I also know of cases exactly like the situation he alludes to. One, a successful entrepreneur, with a seven figure net worth not all that long ago, prudenty diversified and bought some small local ventures as well as a second home. One of his ventures was hit with unforeseeable bad luck; one of his homes turned out to have mold; and his business is such that he has to invest a lot with the expectation (or one might say hope) of getting a big payoff. On paper, he did nothing wrong, he’s not a big spender (his expenses were moderate relative to his income and net worth, and his leverage level would have been deemed cautious in 2007) but adverse developments plus a change in the economy now has him with a negative net worth. He can reorient his business to a steadier cash flow mode, but that makes it less likely that he will be able to dig his way out of the hole he is now in.
For the most part, this sorta-recovery has left the lower income strata still struggling, but even the better-offs may not be doing well, just less badly. What do you see? Do you sense strain behind this talk of improvement, or do you see it as solid?