US recession could last for 3-4 quarters

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By Shravan Sreenivasula/CNBC-TV18

US markets have been seeing a correction since the last four months. So, what does historical recession data indicate? What sense does one get from US Federal Reserve Chairman Ben Bernanke's comments last night?

If one looks at historical numbers of the past US recessions , the country faced a recession anywhere between 8-16 months. In 2000-01, it faced 8 months of recession, in 1990-91 about 8 months, and 1981-82 about 16 months. Historically, that is how long recession has lasted.

Over the last four months or so, we have seen a correction in US markets. It is very important for investors to get a measure of how long this recession would last. Yesterday, Bernanke said there could be further rate cuts in the US. One can expect it going down from 2.5% to about 2%, with the possibility of a US recession looming large. He also said the weakness in financial and mortgage markets will continue.

If one looks at the Greed and Fear report written by Christopher Wood, there are some bearish implications. He describes the current situation as a gigantic scam. He was also surprised that the markets did not take note of AIG's write-downs, which could be a big implication on the world's insurance industry. He differs from the market view that the monetary easing will lead to a V-shaped recovery in markets.

All in all, there are bearish sentiments, which are coming into the markets slowly. It is actually worrying the US investor because there seems to be new information, which flows down whenever Ben Bernanke speaks.

Indian investors as such should be very meticulous in understanding how long this recession would last. Some people in the US say it could last for 3-4 quarters. It could also go longer than that. This recession is compared to that of 2000-01 and 1969-70. So, it is important for us to understand how long it lasts because buying opportunities would emerge from understanding that.