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the bear

Read the bull's take from Dr. Sherry Cooper: Once past fiscal cliff, U.S. fundamentals are strong

I would like to be bullish on the U.S. economy. There is nothing to be gained by any investor if the world's biggest economic power falls into a slump.

But the truth must be faced: the economic tea leaves are dreadful. This is not one of those times when we can all just pick ourselves up, dust ourselves off and start all over again. Too many things have been set in motion that cannot quickly be undone.

You can blame Wall Street if you want, but a lot of the problems started on main street. Before the recession, Americans wanted bigger houses than they could realistically afford and larger returns than they could get on plain vanilla bank deposits. This set the stage for the housing bubble and ridiculous lending practices.

We know what happened as a result, we know how much it cost to "fix" things, and we know that things are not yet fixed. There might be a small recovery in U.S. housing prices, but it is going to be a long, long time before things get back to "normal," whatever that may turn out to be.

The scariest statistic is the median length of U.S. unemployment. Forget an unemployment rate around 8 per cent: If you lose your job in the U.S., you must have savings to last you a long time. Before the recession, the median amount of time to find a new job was seven to eight weeks, a figure that had been fairly stable for decades. These days, count on close to 20 weeks – a figure double the peak reached during the 1990s recession.

The U.S. labour market is a cruel place to be if you are in anyway disadvantaged – a new graduate, a person with limited education, a person who cannot move because of a mortgage that's under water, or a person whose appearance or ethnicity or age makes them less appealing to a potential employer. Times are good only if you are the absolute perfect, easy-to-care-for worker.

If you don't like my not so politically correct diagnosis, then disregard it and just go straight to the bond market. No emotions there: just very, very low yields. The Federal Reserve is flooding the economy with cash, and there's not even a whiff of inflation. Bottom line: There is way too much weakness out there to think that prices are going up soon, so business-as-usual means pricing in a recession.

Even if the U.S. were not going off a fiscal cliff in the short term, there are serious long-term problems that need to be solved. If it makes me bearish to point them out, so be it. Better a realistic bear than a bull about to get slaughtered.

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