Double Dip Doubtful
Originally Published 12/19/2010
I’m doubtful that we’ll dip back into a recession for quite some time. I’m not usually one to make financial predictions, but I wanted to explore the other side of the coin from the usual doom and gloom spewed from the media. We’ve come a long way since the Dow Jones’ lowest dip in March of 2009 to 6,626 points. The market has come back substantially since the recession bottomed out and is up approximately 68%! Now, the stock market hasn’t fully recovered to its peak in 2007. But, it’s getting closer each month!
Of course, the stock market isn’t the only indicator metric on how well the economy is doing. Jobs and unemployment, housing and foreclosures, consumer reporting, inflation and interest rates, are just a few that I can recall. The question really is about whether most of these other metrics are going to move in a drastically positive direction over the next year OR whether they are at the bottom of their decline.
Jobs seems to be the #1 problem and they are relatively easy to measure. I’m hopeful that with an increase in the stock market, confidence will slowly build for companies to add more labor. But, this is a very hazy prediction and probably unknown if we’re at the worst of the unemployment. Officially, we’re under 10% unemployment, but unofficially I’d say we’re closer to being under 20%. It’s pretty bleak out there! However, it does seem crazy to think it could get much worse. So, it definitely could be approaching or at the bottom. Just one side note, the IT industry is at an all time low in unemployment. Numbers from early 2010 show a rate of below 3 to 4%! The tech market is actually staggering due to lack of talent availablefor jobs that have steep requirements.
Housing seems to have bottomed out and I would venture to say the worst of the foreclosures is currently in progress. I don’t think it’s going to get any worse than it is today. Most people have already foreclosed or are in the process of doing that now. This is a very painful subject, but since housing prices are basically “reset” this should spur slow and steady growth.
Consumer spending is a major indicator of how well the economic engine is doing. This is obviously heavily dependent on folks having jobs and money in their hands. After a foreclosure, most people have started spending again. Probably not as crazily as they did during the dot com bubble, but enough to get upgrade their “stuff”. TVs, appliances, and maybe a vacation are the first things that I’ve noticed in spending behavior after a fairly long and tight budget. Consumer spending is probably close to last on the list in order of recovery. You just won’t see the spending until jobs are back, housing is settled, and more money is in the hands of consumers.
Interest rates are practically at zero and don’t have any where else to go but up. Inflation is under 2% and is basically “underweight” for the Feds 2% goal. But, to get interest rates up and inflation to gain a point or two, it seems as though the only option is for the government to start buying back bonds. This would decrease the supply and increase interest rates to make money more valuable for lending to companies. This could create confidence in long term growth and create jobs. It could be the most uplifting strategy for an optimistic future that I’ve seen yet.
So, with all these indicators basically at the bottom or close to it. I get the feeling that the world/media sees the glass half empty and draining rather than half full and ready for a fill up. These metrics have been pushed down for so long that we’re due for some solid growth. It could be possible for the Dow to bust through 20,000 points by 2012 if it continues to grow at about 59% per year (March 2009 through March 2010). However, this growth is not sustainable for years to come. But, more realistically it could be possible in 5-7 years with normal steady growth and recovery across these metrics.
I’m an optimistic person. At least, that’s what I’ve been told. I’ve already put most of my chips back in the game awhile ago and am hoping for continued growth. Now is the time to buy and sell higher!