As I’ve just thoroughly enjoyed the opening weekend games of the NFL, I thought I’d start with a football analogy to make my case.
Here is a bizarre but true factoid that exemplifies the drawing of flawed conclusions based purely on logic:
If the Detroit Lions win a single game in the 2009 season, their record will be a 100% improvement over the previous season.*
Someone bearish on the Lions would say “Wow, so they lost every single game last year and managed to eke out one victory this year…big deal, the team still sucks.” And this would be correct.
Someone bullish on the Lions would say “They just doubled their wins from last season to this season!” This would also be correct-ish, although a foolish, narrow and ultimately misleading extrapolation of the true performance of the team.
(* mathletes: I’m aware that zero doubled doesn’t equal one, we’re just trying to illustrate a point here, not win a Nobel prize.)
Where this relates to the economy and markets is that we’re coming up on the anniversary of the 4th quarter of 2008, aka The 90 Days That The Wheels Fell Off. There will be improved metrics, economically speaking, almost by default when you consider what went on this time last year.
Just as they’ve begun calling September of 2008 “The Month That Shook the World”, I think those of us with our sleeves rolled up and both hands deep in the dirt of capitalism would say that the initial tremors of last September weren’t really felt in the broader economy until last year’s Q4. Lehman‘s demise, the AIG rescue and the near-death experiences of Wachovia and Merrill Lynch certainly made the front pages of many local papers, but they were still “Business” stories.
That’s when the credit crisis became palpable for Main Street, when the business headlines became actual pink slips and bankruptcies. In the wake of Lehman’s demise, people woke up to the fact that not everyone would be saved. Lines of credit were cut unceremoniously, leaving businesses without the wherewithal to reorder inventory, meet payroll or cover leases and basic overhead. Payrolls and jobs were slashed with all the surgical precision of a battle axe.
And then things got worse and worse and then really bad…and then horrible.
Now, we’re about to be lapping that horrible quarter and I believe that there will be a tendency in the media to make a great fuss over the comps, to make the headlines look prettier than they really are. A lot of people only read the headlines (especially news anchors) which makes this prospect doubly dangerous.
As we head into the 4th quarter of 2009, there will certainly be data points that come out that show a remarkable improvement over the Crisis Quarter that was October through December of ’08. The second derivative numbers (ie: a slowing in the rate of decline) will be especially improved in certain areas, from manufacturing to home lending to hiring.
Unfortunately, like the breathless reporting that would be made possible if the Detroit Lions were to pull out a single win this season versus a win-less previous season, hyperbolic headlines of data improvements will undoubtedly spark rallies and excitement, regardless of how low of a base they are building off.
The Bubblistas will not be inclined to remind viewers and readers that economic readings are hopping over an extremely low bar set in the aftermath of the mass upheaval of last fall. Instead, they will run with headlines that will captivate the casual observer who does not quite have the memory or frame of reference to think about how unemployed and listless the populace still truly is.
Oh, and by the way, the Detroit Lions got creamed in their first outing for the ’09 season yesterday, New Orleans abused them to the tune of 45 to 27. Gonna be a long 4th quarter for both Lions fans and for those seeking truth and context in the mainstream media about our current condition.