Has This Recession Seen It's Shadow?

With all due respect to Punxsutawney Phil, that lovable, furry creature charged with predicting the longevity of our winters, it's hard to predict beyond a shadow (pun intended) of a doubt whether seeing this recession's shadow means six weeks, six months or six more years of this mess.  Of course, when Phil is wrong, no one will demand that he live above ground or perform community service.  Not one iota of the vitriol that would be directed at, say, Treasury Secretary Geithner if his forecasts went awry.  Plus, Phil never forgot to pay his income taxes.

There are signs of an early spring in this recession.  While the stock market has been on a bit of a roll, the credit markets, where this whole mess began, is showing signs of a spring awakening:

• Companies with good credit are borrowing more in the bond market.
• Confidence in the banking industry (especially community banks and credit unions) seems to be returning slowly.
• Junk bonds are coming back into vogue (yields are about 16.5 percentage points more than Treasuries, a large premium for risk).
• The market for securities made from bundles of car loans and student loans, a vital source of credit, has started to stabilize.
• Home buyers are seeing some benefits of the credit thaw as interest rates on fixed, 30-year mortgages fell to the lowest levels on record.

I can't see my shadow, can this be over?

 Wait a minute, like they say about the weather in Vermont, if you don't like this economy, wait five minutes.

• Credit markets are still fragile.  Ratings agencies are slashing the credit scores of such bellwether companies as General Electric.
• General Motors bondholders are bracing for a possible bankruptcy filing.
• If unemployment continues to race higher, or the stimulus package fails to take root and the economy enters a deeper period of decline, many of the tentative gains in credit could come undone, analysts say.
• With the idled capacity in the U.S.--workers, factories, retail outlets, freight lines, bank lending--many economists feel that even if the recession miraculously ended tomorrow, it would take at least three years before full employment returned and output rose enough for the economy to operate at peak levels.

Uh-oh, I think I see my shadow.

It is abundantly clear that it is virtually impossible to predict with any degree of certainty what will happen in the stock or credit markets next week.  Forget about predicting next quarter or the quarter after that.  What is clear is that community banks and credit unions need to forget about looking for their shadow and take advantage of the unique opportunity to grow market share as the negative effects of safety and soundness continue to plague the larger financial institutions.

A recent survey of 755 community banks across the U.S. showed that 55% of those banks had dramatically increased deposits, and 40% had increased loan volume since the beginning of the year.  Is your bank or credit union one of them?  Are you still waiting for that definitive answer of when this mess will end so you can then go back to some form of banking normalcy?

No one correctly predicted the breadth and depth of this economic cataclysm.  And if you're waiting for someone to tell you when it's over, you might as well borrow Phil for a few days.  The banks and credit unions that are acting now to make a positive impact with customers, prospects and their communities will be the true winners before, during and after the economic turnaround happens.