Big time recovery?

Conventional wisdom has the recovery being a protracted affair, especially on the jobs front, but there is a minority view that expects a much stronger rebound. Latest to offer this bullish speculation is the often-bearish James Grant, editor of Grant's Interest Rate Observer, who writes in the WSJ that rather than meager, economic growth is likely to be quite robust.

Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: "[T]he most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period."

While such a cheery prognosis would be nice to hold onto, it's mostly based on past post-recession performance, which is often an unreliable measuring stick. On the other hand (what economic post would be complete without a couple of hands?), the latest state jobs report finds that California only had a net loss of 12,300 jobs last month, down from 39,000 lost in July. On the other hand (one more - sorry), the smaller number might just indicate a near-bottoming out of the huge job losses we saw in the first part of the year - something most economists have been expecting. Yet to be seen is how quickly and to what extent employers will begin expanding their workforces. Grant does offer some much-needed perspective:

The very best investors don't even try to forecast the future. Rather, they seize such opportunities as the present affords them. Henry Singleton, chief executive officer of Teledyne Inc. from the 1960s through the 1980s, was one of these enlightened opportunists. The best plan, he believed, was no plan. Better to approach an uncertain world with an open mind. "I know a lot of people have very strong and definite plans that they've worked out on all kinds of things," Singleton once remarked at a Teledyne annual meeting, "but we're subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible."

Grant also notes the massive amounts of fiscal and monetary stimulus that have yet to play out - in California and elsewhere. He sees a "combined pick-me-up equivalent to 19.5 percent of GDP," which is certainly unprecedented in recent history. Another point from Grant:

"Reflexivity" is the three-dollar word coined by the speculator George Soros to describe the dual effect of market oscillations. Not only does the rise and fall of the averages reflect economic reality, but it also changes it. One year ago, the Wall Street liquidation stopped world commerce in its tracks. Today's bull markets are helping to revive it.