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What We Need for Real Economic Recovery


Hint: Consumer spending is the driving force.


As more encouraging news supporting a global economic turnaround continues to flood newsstands, can the rally be sustained?

Consumer-spending constitutes the largest part of US GDP and, in essence, is a major driving force in an economic recovery. Encouraging news was just released indicating that over the first quarter of 2009, consumers boosted their spending at a 1.4% rate. However, this was still a tad shy of the 1.5% growth rate estimated by experts last month.

Another indicator that an economic rebound may be in sight is that a revised reading of the nation's GDP suggests that the economy will decline at an annual rate of 5.5% -- a bit better than the previously forecast decline of 5.7%.

Regardless of what anyone says, boosting consumer-spending will be the backbone of an economic recovery. The best way to do this is to create jobs; this gives consumers the means to spend. As for now, it seems like we can't get over this hurdle, but it isn't stopping those of us that are employed from spending a little extra.

This can be demonstrated by the performance of the following equities:

  • Internet information provider, Expedia (EXPE) has performed well, rebounding from a March low of $6.39 to close at $15.21 on June 24 -- a jump of 138%.

  • Retail giant Gap Inc (GPS) has increased by 58% after witnessing a March low of $9.85 to close at $15.60 on June 24.

  • The SPDR S&P Retail (XRT), has returned 45% since its March low of $18.27 to close at $26.55 on June 24.

  • There was an increase of 24% by the Retail HOLDRs (RTH), which hit a March low of $61.26 and closed at $76.05 on June 24.

As we all know, nothing in this world is free. When grabbing exposure to the aforementioned equities, one should always keep in mind the risks involved. To moderate these risks, utilizing an exit strategy is vital.

According to the latest data from, an uptrend in the previously mentioned stocks and ETFs will be triggered at the following price points: EXPE at $14.16; GPS at $14.66; XRT at $25.45; RTH at $74.24. Be aware that these levels change daily.

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No positions in stocks mentioned.
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