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Sunday, July 5, 2009

A Recovery?

Lets look at the evidence..and expectations!

Wall Street:
- DOW up nearly 20% since recent lows but still down 5% for the year.
- NASDAQ up 13% for the year.

Many recent company reports have been bad but not as bad as feared or expected.

Unemployment Rate:
- 9.6% and still rising.

Most recent report was significantly higher than expected.

Home Sales and Construction:
-As of May, sales of existing homes nationwide were up two straight months while pending home sales were up four months in a row.
- Inventory of homes is still close to highs of 11 months.
- Nationwide, home prices dropped by 16.8 percent in May as foreclosures continued to home values down.
- Construction spending saw a bigger-than-expected drop in May, down 0.9 percent according the Commerce Department report released this month.
Overall, the sector has only seen one positive period in the last eight months.
- The International Council of Shopping Centers said 6,913 retail stores -- of all types -- announced closures last year (2008), compared with 4,603 in 2007… And the numbers continue to grow…

Consumer Confidence:
- One report, the University of Michigan’s confidence index, reached its highest level since February 2008.
- The Conference Board confidence index, meanwhile, dropped during the same period.
- While consumer spending rose in May, the national savings rate also hit a 15-year high during the same period, according to the Commerce Department.

The mixed results likely reflect a more positive yet cautious outlook among consumers.

Stimulus vs. Inflation vs Interest Rates:
- Stimulus packages have given the appearance of stabilizing the financial sector.
- All this extra money has yet to increase inflation or interest rates, yet.

So, What is my take on all this?


Expectations have been set:
- The administration has set the expectation that the economy will get better but some things may get worse before we are out of the woods. Basically they have set the bar low so that they can generate positive expectations and HOPE.

To quote Martha Stewart... "this is a good thing"

The Stock Market:
- The financial sector is, at least temporarily, stabilized.
- Hopefully business reports, although down, will continue to be "not as bad" as expected.
- Companies are continuing to shrink both in number of offices, stores but also in employees.
- This helps boost returns by cutting costs and getting rid of negative revenue.
- Overall, the stock market likes this - believe it or not.

So, overall for the short term, I see stocks continuing to rise.

... "this is a good thing"

But expect things to be volatile!

As we all have seen; any negative news; such as a worse than expected unemployment rate, will drive the overall market down.

But there is opportunity to make money based on this volatility.

... "this is a good thing"

However...

For the Long Term:

- Inflation will be critical!
- Interest rates will be critical!
- Basic Supply and Demand principles will be crucial!

Until the unemployment rate at least levels off and more importantly goes back down, true recovery will not occur.

People need jobs to generate income.
Income is needed to spend money on buying things.
Things from: Houses, to groceries, to discretionary items.
The more people spend vs save the more stores will increase sales and distribution.
Until that happens, storefronts will not recover.
Until storefronts recover, construction will not increase.
Until home prices stop falling, it will not matter how good rates will be because people will not have the money to spend on home purchases.
Until construction (demand) increases, jobs will not increase.

So, here is to hope and expectations for continued progress in getting out of these troubled times.
It will not be easy,
It will not be over a short period of time,
nor will it be, as some people (generations) seem to have recently developed expectations, "entitled" to get better or go back up,
But rather, we will all have to work for it!

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