| 11 August 2009

Charles Schwab Corp's (SCHW) Liz Ann Sonders lays out the pessimistic case for the economy in her monthly forecast. Or, as she likes to call it, the "obvious" case. Pandering to the glass-half-empty crowd she makes it clear that we... I mean they... are simply pointing out the obvious economic hurdles like rising unemployment, debt levels and budget deficits.

Of course Sonders doesn't (necessarily) agree with the pessimistic case. When making the contrarian case for a market in full recovery Sonders is nothing if not thorough. She clearly thinks we're pulling out of a "V"-shaped recession. Not only does she make her case with a deep dive into the usual suspects like consumer spending and unemployment, she takes time to walk through consumer and business lending conditions (improving) and the manufacturing and service sectors (turned).

We like keeping an eye on Sonders and her forecasts. We even think her "coiled spring" analogy sounds great (in theory). Who wouldn't want to see some pent-up demand for production and employment unleash with a fury? We could all use a nice “post recession pop,” as Sonders puts it.

However, lest you think we're totally smitten with Sonders's siren sounds of hopeful recovery, never fear. We still wonder whether the spring is truly coiled; perhaps kinked beyond (quick) repair. While even Paul Krugman admits "the great free fall might be over," we agree with him when he says, "It’s leveling out but that is very different from returning to normality."

Only time will tell if a recovery is nigh. So how does this affect investors? Take a look at a couple possible scenarios courtesy of Doug Short via Calculated Risk, (click for larger image) which show us how the last four great recessions ended (or didn't).