New Theory: It Will Be A Square Root-Shaped Recovery

There’s a violent argument right now between the folks who think the economic recovery will be “v-shaped” (super-strong) and those who think it will be “W-shaped” (a brief turn to the positive for a quarter or two, followed by a plunge back into recession). 

It’s worth noting that this is a distinct improvement from the argument of six months ago, which about the degree to which the economy would completely collapse.

We had Liz Ann Sonders, the chief investment strategist for Charles Schwab, on TechTicker.  Liz was an early optimist: Back in June, she came on TechTicker and said the economy was already recovering.  Many people thought she was a nut.

Liz has since been proven right about the recovery, and she continues to think it will be much stronger than most people think: A distinct “V” shape for at least the next quarter or two, with 3%+ GDP growth.

After that, however, Sonders disagrees with the growing consensus that we’ll slip back into a double-dip “W”.  She thinks the recovery will be “square-root-shaped.”

In other words, by mid-next year, Sonders thinks, the chart of GDP growth will not look like this:


Or this:


But something like this:

Translation: We’ll continue to have a surprisingly sharp recovery as the economy recovers from the cardiac arrest of the financial crisis.  But after that we’ll struggle along in rehab.

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