Schwab's Liz Ann Sonders is bullish on the economy

Liz Ann Sonders, Chief Investment Strategist for Charles Schwab and Co. who correctly identified the end of the recession in the second quarter, now believes that the consensus is wrong again. With negativity blossoming and almost hoping for another economic slump, her objective analysis leads her to the conclusion that a "V" recovery is the most probable scenario.

The "V" scenario means that, for the short-term, output will increase as fast as it decreased, a view outlined earlier this year in this column. Many are predicting a "W" configuration with economic activity tanking after moving forward. Sonders confirms what we have said here often: that the bear market in mortgage-backed derivatives caused a drop in inventories due to tight credit--not lack of demand. Some easing in the credit markets is obviously having beneficial effects.

Sonders fears, however, that the economy may recover too quickly, causing the Fed to raise interest rates to prevent a serious inflationary threat, an unwanted scenario for the stock market. For now, she sees the short-term recovery cooling to form the shape of a square-root sign. That means slower growth after several quarters a vibrant 3+% GDP growth. Obviously, there are systemic economic problems such as huge public and private deb that will need to work themselves out over time.