Time Bomb Recovery

The news agencies are currently abuzz with praise and adoration for the 3.5% annualized GDP growth rate that was reported in the third quarter of 2009 by the Department of Commerce.  The financial markets took this to be an indicator of future growth, and justification for the recent rally in values.

However, there is a very critical connection that has not been internalized into the market.  This insight is based on the reported GDP that shows consumer spending making up 71% of Q3'09 economic output.  It is no secret that consumer spending has been the backbone of most previous economic recoveries, but nobody is asking how the consumer can drive a recovery when unemployment is at 9.8%?  Regardless of whether the consumer spending came from government financed subsidies or increased consumer debt, it is still a temporary 'bump' and not a sustained improvement in economic fundamentals.

Season 1, Week 1

1st & 10

The S&P 500 lost 27 points, or 2.6% of its value today.  Ben Bernake reported that he sees risk on the horizon if the US debt is not contained.  As difficult as this is to believe, such 'shocking' insights now constitute news.  Thank you Ben, for stating the obvious in such a way as to make it sound even more obvious than it was before.

*Runningback tackled for a loss of 2 yards*

2nd & 12

The recent month-long stock market rally has been led by a perception that they current recession may be nearing an end.  Attractive earnings reports from the financial sector in Q2 and persistent easy money has led many to believe that a recovery is on the way.  Capital is slowly moving out of treasuries, and into the stock market.  "Green Shoots" is becoming the en vogue catch phrase for the pseudo-intellectual and faux elite.

*Pass complete to the Wide Receiver on a slant route for a gain of 9 yards.*

3rd & 3 

Market sentiment seems to be based on the perception that recent profits that were created by the reversal of asset impairment during the sub-prime crash will continue indefinitely.  The market is facing challenging fundamental since continued revenue growth will require new customers, and unemployment is still hovering around the 10% mark, and trending up.

*Pass incomplete to the Wide Receiver on a fly route down the sideline.*

4th & 3

When discouraged workers and involuntary part time employees are added to the tally, unemployment + underemployment currently tops 15%.  Compound this with a current year government deficit likely to exceed $1.5 Trillion dollars, and a stimulus plan that isn't stimulating the economy.  With the combination of a large debt, large deficits, and a massive unfunded entitlement liability, it is increasingly likely that the government will need to hyper-inflate the currency in order to dissipate its spending obligations.  I certainly hope that you weren't counting on that social security check to live on.

*Ball Fumbled by the Runningback and recovered by the defense.*