ECONOMIC RECOVERY– “Not according to Bank insiders”

Economists and politicians chatter about green-shoots and pundits come out waving the flag – predicting the worst is over. Then the bottom falls out – we hit the depression. Sound familiar? History is not only a great healer – but a fantastic teacher. Let’s take a little trip down memory lane. Its 1929, Wall Street crashes. But the DOW rallies solidly over six months in 1930, reclaiming nearly half of its losses.

Not so long ago, Japan’s economic “Lost Decade”- between 1990 and 2000 was seen as one of the most turbulent ever for the archipelago (in a sense, the country is still waiting to fully recover). Nevertheless in that first year, pundits squealed that the worst was over as the Nikkei peaked at 38,900. At one point the biggest rally came in at 140% and then inevitably the bottom fell. The Japanese stock market is the lowest it has been since the 80s.

Now, to presume that this is a fate we are impervious too, is a whopping presumption. All we need do is look at the real estate market – do you honestly believe that we have seen the worst there is in the housing market? This year alone witnessed house equity fall by $2T and we haven’t even reached the full throws of summer. To top that, consumption is plummeting and unemployment is at record levels and will rise further.

Fundamental scrutiny of economic data illustrates we are no way out of the woods. Unfortunately recovery is not around the corner. In all seriousness, we have not even bottomed in this recession. To be able to genuinely declare an upturn, we have to dissect the issues surrounding the banks credit quality, deposit growth, real estate foreclosures and toxic assets.

Banking insiders will tell you that until the credit quality calamity and toxic assets, now referred to as "legacy" assets are resolved; they will be severely restricted in their lending practices. This is the main reason we haven't seen much on the merger and acquisition front. The only way the M&A activity will pick up is when the banks feel confident about their internal business.

When you have a credit crisis of this magnitude, it is essential we are cautious and steer away from reckless, baseless and hasty declarations that assert all is well. News of good tidings is always welcome, but don’t let this false prophet make phoney declarations.