Where are we inthe current cycle?

I recently saw a great set of charts and explanations of the current economic and housing mess that we are in, which help one better understand where we might be and what lies ahead. First lets get to a chart that I composited from a stack market web site and my own thoughts on what we've been through and where we might be.

I really believe that we can trace a lot of the current mess that we are in to the September 11th incidents that put the country on alert and started us on a path to war in Iraq, so I put that part in. The housing market was still in euphoric state and indeed it continued in that mode well past 9/11. Housing values had been climbing at double digit rates for a while and continued upward until sometime in the 2002-3 time frame, before anxiety took hold and things started back down. They have been sliding ever since, as first denial and then fear took hold in the market and the economy. It was likely the grip of denial on at least General Motors that got them into so much worse shape than Ford Motors is in today. But then, denial has always been big at GM.

Denial also was the watchword from most homeowners, who just refused to believe that the outbreak of foreclosures and falling values could affect them. I'd say that we made rapid progress through fear, depression and panic and have now entered the capitulation stage and maybe the early despondency stage. Those aren't good and they have brought a lot of pain, but they are something that we need to just get through, in order to move on. So maybe the phrase "bumping along the bottom", which I hear from some economists, refers to the stages of capitulation, despondency and depression - each a bump in the road towards recovery.

I certainly think that President Obama leveraged the need for Hope during his campaign and is nourishing it now, as he and his financial team try different things to try to fix various broken financial systems. He's pointing towards Recovery, but it feels like it may be at least next year before we get to that stage.

When we do start up the other side of this cycle, and get to optimism and excitement and beyond; let's hope that we can substitute in a bit of common sense at the Thrill and Euphoria levels, instead of just the stupidity and greed that was there before. That's where proposed new controls and regulations will come into play.

Of course the problem with all of these charts is that they really give one no timetable at all for each stage. We are now in the longest recession since the great depression and no one is predicting the end yet. Many economist are now pointing to 2010 as the turn around year. I guess that would mean that we're left to wander in the wilderness of capitulation, despondency and depression for the rest of 2009. Not a happy thought.

So, let's end on a happier note. Since hope is the next stage and the way out of this mess, we all need to be beacons of hope in the gloom of the current market. The more we can present a positive and upbeat picture of the market, about what a great time it is to buy, what great choices are out there and what great mortgage rates are available, the more we shine as beacons leading towards hope. Let your light shine today!