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Wall Street Slings Letters, Metaphors In Downturn

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The Associated Press

Published: August 26, 2008

Wall Street, meet Sesame Street.

Bulls, bears and Nobel laureates are talking a lot about letters as they try to predict the shape of the charts that will describe the economy's downturn and recovery.

Will this roller coaster follow the path of a "U" - a stretched-out slump with a sharp upturn? Or will it be shaped like a "V," with a vertiginous descent followed by a quick recovery? Will we wrestle with a "W"-shaped double dip, or labor through an "L" of long-term languishing?

Global Insight's May presentation "U.S. Recession and Recovery: U-, V-, or W-shaped?" answered with a "W," saying a second dip would come as spending from stimulus checks dries up.

"There's been debate about whether it's V-shaped or U-shaped," Nobel-winning economist Joseph Stiglitz said recently on CNBC. "I think there's growing consensus it's an L-shape."

Desperate Or Technical?

By focusing on letters, Wall Street is "trying to make a desperate situation look sort of technical - 'It's not that much of a fuss, the big boys can take care of it, don't you worry,'" said Wall Street historian Charles Geisst. "Except the big boys here, their trousers are getting a little short, I'm afraid."

So far, the downward ride has included record bank write-downs and home foreclosures, the wipeout of $1.9 trillion in shareholder wealth and a spike in unemployment.

The alphabet-shaped charts represent the rise and fall of economic indicators - such as gross domestic product, real income, employment, industrial production and wholesale sales.

The National Bureau of Economic Research, the chart-watching private group that gauges economic peaks and troughs, has yet to declare the current downturn a recession.

Plenty of others have, saying the charts are proving their point to the letter.

"This could extend itself well into 2009, with repercussions that could keep the country stagnant for two or three years," said Jay Brew, chief bank strategist at community bank strategy firm M. Rae Resources and an "L" proponent.

Past recessions did, in retrospect, follow certain scripts. The 1980 recession proved to be a quick "V," as measured in changes in GDP. The next recession, in 1981 and '82, looked more "W"-like. The 1990-91 recession showed "U"-like traits, while the 2001 recession was another "W."

Metaphors Rule Wall Street

The obsession with shapes is a departure for Wall Street, where metaphors tend to be about hunting, war or sex. Partners at Wall Street firms who bring in good deals are said to "eat what they kill" come bonus time. When one company reveals its finances to another, it "opens the kimono" so the two sides can conduct an "open kimono transaction."

Some players are sticking with macho themes, spurning the alphabet and running with sports metaphors.

"We're not expecting this to be a hockey stick, in the true sense of a hockey stick of a year at all," said Dominic A. Romeo, vice president and chief financial officer at pump products maker Idex Corp., according to a transcript of the company's fourth-quarter earnings call in February.

Comparing the downturn to football, Goldman Sachs Group Chief Executive Lloyd Blankfein said in April, "We're probably in the third or fourth quarter," adding, "We're closer to the end than we are to the beginning."

Some Predictors Strike Out

Likewise, Morgan Stanley Chief Executive John Mack said in April that Wall Street was facing the most difficult conditions in 40 years, but added the global credit crisis might be "in the final innings."

Critics say those predictions struck out.

Theodore Forstmann, co-founder of private equity firm Forstmann Little, said in early July that the credit crisis was in its second inning. John P. Hussman, president of mutual fund company Hussman Investment Trust, told shareholders in April that the economy was in the downturn's third inning, with each inning lasting three months.

M. Rae Resources had been posting a debate called "The Great Recession Game of '08. What inning are we in?" that pitted Brew against the company's chief economist, Edmond Seifried.

They were at the top of the sixth when Seifried threw in the towel after grim July unemployment numbers, Brew said.

"The game will be called," he said.

Writing in The Wall Street Journal in July, R. David Ranson, head of research at H.C. Wainwright & Co. Economics, reiterated a point he made during a past downturn that the economy is not a "house of cards," but is more like a beehive.

"The future of the hive does not depend on full employment for all the worker bees," he wrote. "In fact, an accident can put many bees out of action without compromising the hive as a whole.

"Good metaphors can help maintain perspective amid chaos," he wrote.

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