Painting All Recessions with One Brush (NYSE: TEX) (NYSE: CAT)

NEW YORK - While its unlikely the world economy will suffer another recession, it is possible is if the European Union causes it. The union has the ability to halt lending in Europe by not solving their sovereign debt issues which can cause banks to preserve all its capital and stop loans.

However outside the chance of the EU deciding to cause another recession the chances of a recession are quite remote. While European banks are not as strongly capitalized as the gold standard American Banks who boast leverage ratios of under 15 to 1 being the weak banks and 10 to 1 being the strong banks. At the same time European Banks have done a lot to shore up their balance sheet relative to 2008.

For instance Barclays had leverage of 81 to 1 in 2007 today it has leverage of 35 to 1. Royal Bank of Scotland had leverage of 167 to 1 today its 23 to 1. HSBC had leverage of 29 to 1 today its at 24.5 to 1. UBS went from leverage of 99 to 1 to leverage of 36 to 1. While this doesn't compare to their American peers it is certainly a vast improvement in liquidity relative to 2008. Which further negates the chance that all lending will stop. Though the banks capital ratio may be a cause for future concern of shareholders. Though the top Basel Regulation is becoming less likely as policy makers are having trouble coming up with consistent laws across the world.

Once the chance of major economic peril seen in 2009 is proven to be unlikely then we have to look at what a recession actually means. One has to realize a recession is defined as two quarters of negative growth. In 2009 the U.S. experienced -6% growth on top of this banks stopped lending in the U.S. exacerbating financial collapse with poor macro trends. Japan's GDP dropped by 5%. Europe had -2.5% GDP. Even emerging markets like Brazil saw GDP growth shrink by 4.2%.

While a new recession is unlikely people must remember what it means. If the U.S. slips into -0.2% GDP then its in a recession and unemployment is unlikely to decrease but corporate earnings are likely to only drop by a little unlike in 2009. The recession if it happens would be very small compared to 2009. Though this event is unlikely. What is more likely is slow growth going forward which means unemployment will gradually decrease. And corporate earnings will continue to grow.

By pricing stocks as if its 2009 is a giant mistake. One recession does not equal another. You might say well stocks are not priced the same as 2009. While this is true. In 2009 there was a meltdown in all stocks. Apple at $80, American Express at $8. We saw Coca Cola at $40 now its approaching a 52 week high so its a different market. Now the strong stocks have remained immune in a way to the stock market sell-off. Such as Apple even though it would likely be much higher had the markets increased. However stocks like Google which also would be much higher are not moving to their 2009 prices. However certain stocks are. Some of these stocks are not incredibly weak companies but we are seeing a market sell off in 50% of stocks while the other 50% has been holding the market up.

However with prices like this people will either need to wait for new money or exit their Coca Cola positions because the pricing of risk has gotten way out of hand in the current market.