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Sunday, April 20, 2014
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Published: 7/8/2008

Convergence of economic ills a new situation of uncertainty

If American investors and consumers have a sense of deja vu, they have good reason. In the last 35 years we've lived through several recessions, several bear markets, a few crude-oil price spikes, and a couple of serious bouts with inflation.

But if we also feel like we're lost in uncharted territory, there's good reason for that, too. This could be the first time we've had to suffer all four maladies simultaneously for any length of time.

We're not even officially in a recession yet, but it sure feels like it.

Since the early 1970s, there have been five (not counting the current possible recession): from November, 1973, to March, 1975, 17 months; January, 1980 to July, 1980, 7 months; July, 1981, to November, 1982, 17 months; July, 1990, to March, 1991, 9 months; and the 8-month recession that wrapped around the Sept. 11, 2001, terrorism acts.

In the last 108 years, there have been 22 bear markets - in which stocks dropped 20 percent or more in value from the peak- and they lasted an average of less than a year and a half.

However, in the last 35 years, there have been only six, counting the latest one, which began last week for the Dow Jones industrial average. The Standard & Poor's 500-stock average remains just above bear-market level.

Inflation has been relatively tame in the last two decades, until recently. Over the long haul, inflation has averaged about 3 percent annually, and even in the tumultuous times of the last year, inflation has stayed in the 2 to 4 percent range, based on monthly Consumer Price Index figures.

However, those "core" figures exclude food, which has been gaining at a 6 percent rate, and energy, which has been skyrocketing in the last year.

Inflation reared its ugly head in 1973-75, when rates ranged from 7 to 12 percent, again in 1978-81, with rates ranging from 9 to 13 percent, and in 1990, when inflation hit just over 6 percent.

Crude oil spiked at about $38 a barrel in early 1980, or about $100 in inflation-adjusted dollars. It spiked again a decade later, and again a decade after that.

But none of that compares to the streak oil has been on in the last year. At the end of last week, crude prices at about $146 a barrel were up 50 percent so far this year, and double the price a year ago.

The combination of all these economic hits is hard to take. But in the past, inflation has moderated after a few years, bear markets have set the stage for lucrative bull markets, and recessions have taken excesses out of the markets, resulting in such rewards as a 30 percent drop in gasoline prices on average.

The problem is: We don't know how bad the current economic mess is, and we don't know how long it will last.



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