What Will the Recovery Look Like?

A “U”, a “V”, an “L” — Time magazine takes a look at what we might expect in the coming economic recovery, with insight from top strategists such as Peter Lynch and Jean-Marie Eveillard. A sampling of the advice:

Lynch says that waiting for a major economic recovery to occur before jumping back into the market can cost you a lot. “People think that things need to go from terrible to terrific before they can invest,” the former Fidelity star says. “But things only have to get to somewhat crummy for stocks to go up.”
Eveillard, of First Eagle Funds, says not to expect this recovery to be like those we’ve usually seen in the past 60 or so years. “It’s a very different story today,” he says. “The landscape is different, and the recovery, when it comes, probably won’t be along the lines of what we have seen in the post-World War II period.”

Robert Arnott of Research Affiliates thinks corporate bonds — not stocks — are the place to be in this recovery. They’re yielding about 6% compared to the S&P 500 yield of about 3.1%, Time notes.
Nouriel Roubini — “Dr. Doom” — says we won’t get the typical “V”-shaped recovery, but instead something more like a “U”. Consumer spending will be hampered because, even after employment and salaries start increasing, people will use their cash to pay off debt rather than spend it on goods and services, according to Roubini.
If we get major inflation — as many, including Warren Buffett, have predicted — Eveillard says stocks are a better bet than bonds. “It gives companies the power to raise prices, and that is good for profits,” he says of inflation. And, according to Time, that’s what happened in the early 80s “double-dip” recession. “Pricing power accrues to companies that can’t normally raise their rates — commodity producers like steel and timber companies and oil and other energy firms,” writes Stephen Gandel. “Indeed, the shares of materials and energy companies rose 73% and 53%, respectively, in the first year of the bull markets that followed the back-to-back recessions of the early 1980s.”