Are you expecting a “V” shaped recovery this summer? Or do you anticipate a scenario more like a “U” or a “W”? That is the question I have been asked repeatedly this month, as the debate about “green shoots” roars on.

Personally, though, I suspect that none of the letters in the Roman alphabet quite captures what is most likely to go on. To be sure, the last year might seem to correspond to the start of a “V”, “U” or “W”.

Last year, the financial system clearly fell off a cliff, like the downward slope of a pen. But this year, some form of reprieve got underway, marking a seeming turning point. Most notably, in the real economy, the data is looking a touch more optimistic, not least because western companies are restocking, after slashing their inventories late last year. And in the financial sphere, investors appear to have spotted the “floor” to last year’s crash – and started to jump back into the markets again, rediscovering their appetite for risk.

Read Steven Keene from Australia. We are at the end of an "M". THe economy can't begin to recover until the conditions that "inflated" the "M" (so to speak) have been undone. He predicts that these conditions cannot be undone unitl one is back at the beginning and starts over. The other end of the "M" is back at 1988. DOW 2000. DOn't unbuckle your seatbelt yet, the ride ain't over.

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I agree. Something is beginning to happen.

Green Shoots Turning Red Hot

By: Calafia Beach Pundit May 28, 2009

I've been referencing the upturn in the Baltic shipping indices since early February, arguing that they were a good sign that the global economy was coming back to life. As these charts demonstrate, the rebound in the cost of shipping raw materials has now skyrocketed—the Baltic Dry Index is now up 377% from its December low. If this isn't a V-shaped recovery in global trade, I don't know what else to call it. Skeptics will say this only represents Chinese stockpiling of commodities, and that may indeed be a significant factor. But something is definitely going on out there. Where there's smoke there's fire.

I really doubt that the Chinese are the only ones doing something with all the money that is floating around the world. I note that virtually all industrial commodity prices are up significantly so far this year, and oil prices are up 80%. U.S. consumers are paying 50% more for their gasoline since the end of last year, according to AAA.

With the banking system now literally awash with liquidity (the U.S. monetary base, which is the part of the money supply that the Fed controls directly, has more than doubled—rising by almost $1 trillion—since last September), and with interest rates on cash less than 1%, it is only natural for people to try to shift some of that money into hard assets, thus pushing up their prices. And I think that helps explain why the equity market has been doing so well in the past few months.

Furthermore, we've seen increasing signs that consumers are spending some of the money they hoarded in the final months of 2008; monetary velocity has turned up, and that means that the economy has likely turned up as well.

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The Shape of Recession

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