Tuesday, June 16, 2009

Second-Half Recovery Is "Nonsensical": Economy Still Descending, Ritholtz Says

Wednesday's report of a 17% monthly rise in housing starts made for some dramatic headlines, but don't confuse that with an actual recovery, says Barry Ritholtz, CEO of Fusion IQ and author of Bailout Nation.
"Housing Starts did not ‘soar' as Bloomberg claimed; you soar high in the sky, and a move from ankle to knee level does not qualify," Ritholtz writes on his popular blog, The Big Picture. "This was not, as The WSJ asserted, a ‘Surge in Home Construction.' Rather, it was a bounce off of record lows."

Ritholtz's bigger point is that the free fall from September to March was so agonizing, it feels good to be in a "normal" recessionary environment, as he believes we're currently experiencing. Ritholtz compares the economy today to a skydiver right after the parachute opens - the fall is now controlled, but you're still descending.

Furthermore, the fund manager says hopes for a second-half recovery are "nonsensical" citing the continued pressure on U.S. consumers and lack of evidence of a business recovery, as evinced by today's capacity utilization data, the lowest on record going back to 1967.

Having been notably bullish in early March and again in mid-May, Ritholtz is now reigning in his optimism after the rapid-fire 40% rally. His fund is now 70% stocks and 30% cash, and he sees higher probability of a retest of the March lows this fall vs. another significant leg to the advance.

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