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The Long Slog Out of the Recession


Wishing for jobs will not create them.

As far as the economy is concerned, we appear to have become a nation of cheerleaders; almost everyone is "rooting" for discernible and lasting positive trends in the economy. Each tidbit of financial information is analyzed by the pundits who try to place it in their almost-daily revised predictions of where we stand, what's likely to occur, and by when it's likely to happen.

Frequently, there's little agreement among them. News which is at best neutral -- for example, a .02% improvement in the purported "unemployment rate" (see below) -- is interpreted by the spinsters and the market as "good news." Positive information frequently is contradicted by negative information concerning the same segment of the economy released the same day or the day after.

The question on everyone's mind is whether the "green shoots" of autumn will survive the frosts of the coming winter and continue to grow in 2010. When will we see the end of what some are already calling the "Great Recession," not only in technical GDP terms, but in terms of improvement of the financial situation and future prospects of the American people?

There's positive information, to be sure. Stability appears to have been restored among the major American financial institutions, almost all of whom are prospering even to the extent that they're repaying their TARP advances to the federal government. (Cynics would say that principal purpose of these repayments is to avoid government limitations on executive pay and bonuses that may be imposed on institutions that still have unpaid TARP funds.)

The stock indexes have recovered significantly from their March 2009 lows. However, although it's often said that an increase in stock market index levels is a "leading indicator" of a recovery, that conclusion may not follow this time around. Before one gets too excited about the 59% run in the Dow and the even higher run in the S&P 500 average, consider that "recovery" in the stock market is a relative thing; the markets are almost exactly at the levels they were at 10 years ago.

Moreover, as Paul J. Lim wrote in his November 28, 2009 article in the New York Times, the overall price-earnings ratio for the S&P 500 is much higher than it's been in other early bull market moves out of severe bear markets. He offers that one shouldn't take too much comfort in current stock index levels because overall earnings are still trending down. The market indexes also appear to have been driven artificially higher by a the continued inflow of money into the stock market from money funds and other sources because many of these less volatile investments are producing returns that are effectively nil. See Bill Gross' article, Anything But .01%, In the PIMCO December 2009 Investment Outook. The article also contains that great 1933 quote of Will Rogers: "I am not so much concerned with the return on my money as the return of my money."
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No positions in stocks mentioned.

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