How do we know when we've hit bottom?

[James Lee]

Even the economists agree that we are in a recession. This is as much as collapse of public trust and confidence as anything else.

Meanwhile, the stock market has advanced 10% in the last week, and we've seen a very modest bounce in retail consumption. Is this a false start, or the start of a genuine recovery?

When I meet with clients, I do a little cheerleading routine demonstrating that the shape of the recession could be a "V", a "U", a "W", or an "L" - nobody is sure of which one, though. How will we know when we are at the brink of a recovery?

[Eric Garland]

I don't think we can look for a bottom, as we did in the days of incremental adjustments to the same system. We will likely be able to recognize a turning point when there are new winners and losers announced. Right now, the banks are essentially walking dead, but we are still pouring in money to "save" them while listening to our president assert the economy is "sound." This is the powers-that-be trying to pretend there isn't going to be a massive systemic shift, and no, Circuit City closing doesn't count.

I think you can start thinking about the next phase when GDP drops another 20% to bleed off the part of the economy built on home equity loans, when 25% of US retail fails to account for the fact that we have TWENTY times the retail of Italy, when the healthcare companies start admitting their insolvency, and maybe one US auto manufacturer buttons up for good. When we stop cutting $30 billion checks to cover "counter-party risk" to French and German banks will also be a good sign the wreckage has come to a halt.

This scenario will not please your average investor.

[James Lee]

In the interest of continiung the conversation, he is my best guess...

Looking at the stages of grief (denial, anger, bargaining, depression, acceptance) we'll hit the turning point when we've come to accept that continuous growth is not necessarily sustainable, or even desirable. Furthermore, we'll need to be OK with that. People may eventually get bored with despair, and ready for something else. It is that willingness to move on with life that is going to be critical to the recovery. Meanwhile, look for some other "big story" to capture the imagination of the media.

Socionomics has some really interesting things to say about the economy being a manifestation of public mood...