G-20 Governments to Bail Out Sagging Porn Industries

Not really. April Fools and that jazz. Not that saving porn star jobs couldn’t serve as a uniting issue, in an off-the-record kind of way. But I digress.

This week, in the midst of G-20 summit protests and “Global Slump Deepening” headlines, I have come across some good news: more than one prediction that the U.S. economy will begin to recover in the second half of 2009.

In the very same Wall Street Journal article with the dire global slump headline, the paper quotes Federal Reserve Bank of Minneapolis President Gary Stern, who says, “My forecast is actually for some improvement beginning around the middle of the year.”

This statement is preceded by a paragraph referring to recent data from U.S. retailers and the housing market, which shows signs of stabilization, and a March increase in consumer confidence.

Even more compelling, though, is analysis by UBS economists, who are “resolute in their view that a recovery in the U.S. economy should emerge in 2H09,” according to a recent report from the bank.

The report goes on to say that, for investors, the key question is not when a recession ends, but its midpoint, and the midpoint of this one may be upon us. The UBS economists base this theory on data regarding bond and equity performance. Historically, high yield bonds and equities have generated strong positive total returns in the second half of a recession, while government and investment-grade bonds have tended to be the best performers during the first half. 

And over the past 15 months, the performance of these asset classes has appeared to follow the typical path of the first half of a recession, with Treasurys and investment-grade bonds meaningfully outperforming high yield and equities. However, the most recent data suggests markets are starting to price in a second-half recovery.

“The sharp rally in equity and high yield prices since early March has significantly narrowed the performance gap with investment-grade corporates on a year-to-date basis,” the report says. “Risk adjusted returns still strongly favor investment-grade credit, but higher beta, growth sensitive markets are gaining favor.”  

The report goes on to show that investment-grade performance in the first quarter declined steadily, while high yield and equity performance rebounded in March. The three have converged at around -8% to -9%. 

Of course, there’s always bad news around the corner, ready to dampen optimistic outlooks. (The UBS report came out March 27, before this week’s auto industry related drop in stocks.) But no one is saying we have a clear path to recovery; there will always be setbacks. That doesn’t mean we can’t hope to be halfway there.

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