My Two Cents

An Intriguing Counter-Argument

Chris Farrell Apr 11, 2008

Jim Paulson, the chief investment officer at Wells Capital Management, is always insightful. He has a nicely honed contrarian streak. I liked this excerpt from his latest newsletter:

Worst Ever” Post-WWII Crisis??!?

This crisis is often referenced as “the worst since the Great Depression!” If it is in fact the worst ever, why is the stock market only off by about 12 percent from an all-time record high achieved less than six months ago? Shouldn’t the stock market be off by 40 or 50 percent if this were truly the worst crisis ever? Why are commodity prices stronger than almost any other time in U.S. history if the economy is so weak and vulnerable to make this the worst crisis ever? Why are profits near an all-time record high and why has the U.S. been enjoying one of the strongest profit cycles of the post-war era? Why are the nonfinancial companies within the S&P 500 index still coining profits (for these companies profits rose at a double-digit pace in the fourth quarter and appear to again be rising strongly in the first quarter)?

If this is the worst ever crisis why are layoff announcements still extremely low, why is the 4-week average of initial unemployment claims still below 380,000 and why do 95 percent of Americans which want a job, have a job? Why are the balance sheets of nonfinancial corporations stronger today than almost anytime since the 1960s? If conditions are the “worst ever” for the consumer, why has aggregate household liquid asset holdings risen by the outstanding rate of almost 10 percent in the last year? Finally,if this is the “worst crisis ever” why does the world economy still enjoy healthy growth coming from more diverse places in the globe than perhaps ever in U.S. history? There are indeed serious issues surrounding the contemporary crisis, but do you think perhaps there has been just a bit of an overreaction????

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