Weekend Reading: Assessing the Downturn

Good Sunday afternoon, and welcome to another edition of Weekend Reading. First, a look back at the week that just finished, then a look forward to the week ahead, and, finally, a summary of articles and research papers worth reading.

It was the first materially down week for the markets in what feels like years. (See table below.) It obviously hasn't been that long since the markets were in decline, but we have been on a monster run, so last week's losses were both overdue and something of a surprise. The causes were myriad, from banking troubles to weak economic numbers. The result is the beginning of an inevitable correction after a boffo market run.

Next week will likely continue what meteorologists like to call a "current unsettled pattern." Markets are trying to see through the stimulus to understand how real the current recovery is, whether it's sustainable and how long and strong it's likely to be. After all, little appears to have changed for the U.S. consumer, who remains overburdened by debt and wobbly. Has anything changed? How will we know, and when? My best guess is that things weaken considerably in 2010, much more than anyone expects, but that the current year could still surprise (so long as oil doesn't moonshot higher). ...