Will this be a traditional “V-shaped” recovery?

As the nation battles to recover from its current 18 month long recession (stated duration based on the National Bureau of Economic Research which determined that this particular recession started in December of 2007 according to their criteria), many economists believe that the eventual recovery will follow the traditional “v-shaped pattern” where we see a sharp, consistent increase once the bottom is ultimately reached.

At Hennion & Walsh, we are currently of the opinion that this recovery will be more “u-shaped” where there will be a period of general economic malaise followed by a gradual improvement in the economy over an extended period of time, which will likely begin towards the later stages of this year and early 2010.

However, as Newsweek recently reported in an article entitled, “The other W”, there is a growing sentiment that this recovery could take on the shape of a new letter; “W”, where the economy would experience a rebound, fall back down and then resume its upward movement. According to Newsweek, “The Fed, along with every other central bank in the world, is printing money faster than ever.  As a result, inflation may go back up.” As I have stated in earlier posts, I believe that the threat of inflation is upon us and investors would be wise to start taking it into consideration with respect to their individual investment strategies. In terms of whether or not this recovery follows a traditional “V”, a characteristic “U” or a new “W” shape will rest largely in the hands of how, and when, the Federal Reserve combats growing inflationary pressures.

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