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If a recovery is coming, one size won't fit all

August 27, 2009 |  7:00 am

What’s the likeliest shape of any U.S. economic recovery?

Answer this first: What business, or geographic region, are you in?

Forbes publisher Richard Karlgaard, writing in his DigitalRules blog, makes a simple and quite valid point about the universal effort to boil a recovery down to a single letter shape, typically U, L, V or W: One size, or one letter, won’t fit all.

Karlgaard, like many others, expects a U-shape for a U.S. economic recovery overall, meaning a slow turnaround. (All U-shapers really mean to conjure a U with a stretched-out bottom.)

But within the U he expects a "VW economy" -- pockets of Vs, or rapid and sustained recoveries, and pockets of Ws, or recoveries followed quickly by renewed weakness:

"The V part of the VW economy includes dynamic growth companies and large exporters. Apple is enjoying a V recovery. Salesforce.com just reported a big, booming V quarter on Friday. Mobile broadband is an entire industry that will enjoy sustained V growth. Low-tax states like Texas, Tennessee and North Dakota are experiencing V recoveries.

"America's W economy includes all those companies, industries, states, cities and personal careers where deteriorating value propositions were masked in good times. It always happens that way. Recessions unmask bad business models. The 1973-74 recession laid bare the inherent inefficiencies of slapped-together 1960s conglomerates. The 1990 recession unmasked the problems of IBM and the minicomputer industry.  IBM made adjustments and fought another day. The minicomputer industry just died.

"Today's W economy: newspapers, McMansion builders, inefficient manufacturers, high-tax state and local governments, and workers unable to adapt, relearn and relocate."

Karlgaard’s view makes sense if you believe there is in fact some kind of recovery underway. The U.S. economy is so huge and dynamic that both success and failure are ever-present, of course. The recession has been absolutely brutal and has killed off countless businesses. But many others will survive and will grab the market share left by the casualties (though for some industries the overall pie will have shrunk, maybe permanently).

I’ve argued before that the stock market’s rally since March has largely been a snap-back from price levels that were discounting Armageddon.

If the economy isn't on the verge of a second implosion (still a point of contention with many people, I realize), then the market’s next phase should be about separating the true V-recovery companies from the U, L and W companies.

-- Tom Petruno

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