Today is July 24th 2009. The DOW is above 9000 points for the first time in several months. Consumer confidence has been rising for some time now. Jobless claims have been slowing. So..what does all of this mean? Are we on the upswing of this recession? Well, the answer is: It's complicated... No one will really know until way after the fact. What we do know is that a positive stock market is a precursor to an economic recovery in a typical recession. I know, I know...this is no typical recession and the way the DOW swings, we could be back to 8000 in no time. With all this volatility, the current economy reminds me of someone that had a lot to drink, had a great time, and is now in the midst of a major hangover.
America showed up to this party in the late eighties and partied all the way up late 2007. Yeah, that sounds like a pretty nice party, but man did we get clobbered. Sure, there were bumps along the way. There was the mini recession in the early nineties, the tech bubble in 2000 and the volatility after 9/11. So how did America get ourselves out of those little pickles? They spent and spent and spent some more. In the 90's and early 2000's, Americans were borrowing money at an astonishing rate. The consumer savings rate fell to 1% in 2004 and remained there for four years. All of this spending was okay because the home values were going through the roof. Consumers had an ATM through their home in the form of an equity line. So, this is the point in the party when you're feeling great and nothing can be better....
Then came that last drink that puts you over the edge. The real estate bubble burst and there was a correction in the market. This correction turned into one of the biggest economic melt downs in history. Basically, once home values started to fall, the rest of the economic dominoes started to fall. The rest is history: Six million people have lost their jobs since December 2007. As a whole, America has lost about 1.5 trillion dollars in wealth; that's a serious bar tab huh?
The American Economy awoke after a night of partying and had its biggest hangover in about 80 years. We've been struggling to get our feet underneath us for a while now. With the help of a trillion dollar aspirin in the form of stimulus legislation and some much lower energy costs to help wash it down, we are finally able to keep food down. Just like you tell your son or daughter when they've partied just a little too much and they're feeling horrible: I hope you've learned your lesson mister! Only time will tell if we have learned from this. What we do know, is that the recovery from this will be long and slow. Remember, the market is logical. After a recession companies and consumers will understandingly be more skeptical and cautious. Home prices will rise at a much lower rate. Companies will higher back employees slowly and we will eventually recover from this hangover.
I just hope that we will be a little more responsible in the future and maybe say no to that last drink next time..
Jonathan Haug
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