If the bullish scenario plays out this week, flows are likely to be tilted more so to North America ...
The Great Recession Is Over
11/18/2009 10:29 am EST
David Fried, editor of the Buyback Letter, points to specific signs this recession has come to an end.
Is the worst recession in 70 years over?
Yes, it is!
A growth rate of 3.5% in gross domestic product for the third quarter signaled the end of the recession. Home sales have risen for a few straight months, the stock market has rallied since March, the economy is expanding, and Federal Reserve chairman Ben Bernanke told Congress economic activity “will increase slightly over the remainder of 2009.”
Congress is focused on housing: The Senate just voted to extend the $8,000 tax credit for first-time buyers to contracts signed by April 30, 2010 and closed by June 30, 2010. The bill also created a $6,500 credit for those who buy a home after owning one for the last five years.
Additionally, Congress passed a stopgap measure that will keep in place for now the significantly higher loan limits for federally backed mortgage loans. In the US, housing (and everything associated with it) accounts for 40% of GDP, so if you stimulate housing, the economy will follow.
The number of new unemployment benefit claimants has fallen each week for the past month, and the number of people on continuing benefits fell to its lowest level in half a year. The Senate voted unanimously to lengthen unemployment benefits by up to 20 weeks.
[But] the housing market is still fragile: Home resales dipped unexpectedly by 2.7% in August, after a four-month streak of gains." Nationwide sales are up more than 10% from their bottom in January, but are still down nearly 30% from their peak nearly four years ago.
A rebound for home prices is critical, because homes are typically a consumer's largest asset and rising prices make them feel wealthier and more confident to spend money. Consumer spending is the most important engine for economic growth. Both of these factors will help buttress the banking sector as well.
Consumers remain wary of spending as jobs are scarce, lending is tight, and government stimulus programs end. Total US consumer credit posted a deeper-than-expected drop in
August, suggesting consumers are opting to cut their debt rather than spend.
All told, we are encouraged about the US economy. President Obama hailed the positive economic figures as "affirmation that this recession is abating," while Fed Chairman Bernanke said, "From a technical perspective, the recession is very likely over at this point." The subsequent GDP numbers confirmed this assertion.
It took an epic effort by the Federal Reserve, the Treasury Department, Congress, and the taxpayers to lift our $14-trillion economy from a terrifying downward spiral.
As I finish penning this article, industry reported a 9.5% increase in productivity in the third quarter. It was the biggest jump in productivity (output per hours worked) since 2002! Meanwhile, retailers reported a 2.1% increase in October sales (vs. 2008), and many companies have surprised us with the strength of their earnings.
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