CapitalistMarks

Economic light . . . and the tunnel looks short.

Posted on 21. Dec, 2009 by scott in economic daydreaming

I have had little to feel confident about for the last 2 years regarding our economy and our stock markets.  This lack of confidence has caused me to tighten up our family’s economic belt and we have gotten used to it.  I have also pulled way back on investments.

I will be honest, I have not stayed out of the market and in fact have traded stocks at a pace about double what I have done in the previous 4 or 5 years.  But I have done so with less money and with substantially shorter-term  trades.  That is what caution and the high volatility of the past two years have dictated (at least from my view).

But hold on here, folks!  The wait for smoke to start pouring out of American factories is about to end.  (please take this metaphorically because lots of growth will come from small business and service industries)

Anywho, starting a few weeks ago I began to take a different tack as the view from the bottom had changed.  I have been looking for investments and not trades.  That means that long-term buys appeal more than short term trading.  I did so very cautiously and with a bit of trepidation. A lot of worry still wracked my fragile mind.

Then as the news piled up last week (I will give you the headlines soon) I realized that key economic indicators were finally confirming my earlier impression.  Now I am looking at investments to hold on to for at least six months and perhaps even a year or more.  Things that have real growth potential in an expanding economy, things that provide a steady income stream via historically high dividends that can only grow if the corner has  really been turned.

Why am I telling you this.

Its simple.

For the first time I don’t believe we will have a “W” recession — the kind where another big downturn would be imminent any day.  For the first time I really believe that a “V” recession is what we have just gone through and that the right-hand side of that “V” is going to be steep and long.

That means companies will start growing, earnings will increase (a lot really since most companies are ‘lean and mean’ right now), tax revenues will begin to increase (so the government can start paying off our incredibly high national debt), and unemployment will start to shrink (not as fast unless Obama really takes action as promised recently).  More importantly, because the FED is keeping interest rates low (no quick end to that policy) and hundreds of billions of Obama’s stimulus plan will start to hit main street this year, growth could be pretty phenomenal.

Now, let me give you a few of the headlines from last week as promised:

“Exports up for 6th straight month, boost recovery” — a weak dollar has helped here

“American’s net worth up for 2nd straight quarter” — think both home values and investment portfolios

“Leading indicators rise for the 8th straight month” — money supply, stock prices, building permits, improving labor markets all helped here

“Americans most pessimistic they’ve been since January”  — this is a contra indicator (from CNBC) and and is mostly reflective of political issues rather than raw economic ones

The bottom line is that I have changed my view on the current recession.

It’s over folks!!

And it is not coming back anytime soon.  It was painful, yes, but the gain from the pain is just ahead.

The next year or so of economic and investment  (primarily stocks) growth is going to be really good — probably at least 3% GDP growth in 2010 and the stock markers should be up steeply as well (but not straight up)  I wouldn’t be surprised with the  Dow at 13-14,000 by next year end.

I’m feeling real good about the near term future ( I always feel good about the long-term future) and I think you should too.

The old caveat on unemployment is always out there but it is a 6-12 month lagging indicator and yet I expect it will begin to improve almost from the first months of 2010. So I’m not going to beat that dead horse anymore (unless Obama and the dems fail to stimulate here as they have recently promised — and I will be watching President Obama).

Whew!  Thanks heaven (and I really mean that).

The recession is over.

Good times are just ahead.

I’m counting on it!

Thanks for the photo from flickr to ahbijeet.rane

Tags: building permits, corporate earnings to grow in 2010, debt payoff, employment growth, end of recession, gdp growth, good times ahead, interest rates, lagging indicator, leading indicators, stimulus, tax revenues to increase, unemployment