I would love to see a recession. I would equally love to see GDP come in at less than 1% this quarter. But here’s what could happen in the short term: the markets would continue to climb on the hopes that weakness would lead to lower interest rates. That’s where we are right now: good news is good news (for earnings) and bad news is good news (for interest rates). And it’s going to remain that way until the market thinks earnings are actually going to be less than projected. If the market sees little negative impact on earnings (from a slowing economy) while interest rates decline, the market will continue to climb. I, for one, would like to see considerably lower prices for most assets, as I think we’re considerably out of equilibrium. I’m in Jeremy Grantham’s camp on this issue.
