Reply #2: Market Observation

[ozymandius]

Speculating on Recovery
BY DANIELLE PARK

“"Better-than-expected" is Wall Street's euphemism these days for "we're happier than we thought we'd be." But Wall Street is in the business of cheer leading, even when there's really nothing to cheer about. It wants investors to think positively, on the assumption that positive thinking can be a self-fulfilling prophesy: If investors begin putting more money into the market, then the market will automatically rise, leading more investors to put in more money -- until, that is, the rally ends because nothing has fundamentally changed in the real economy. Keep your eye on the real economy, where unemployment and underemployment keep rising. It's not as much fun as cheering and investing right now, but it's far safer.”

--Robert Reich US Secretary of Labour, July 24, 2009

It is now widely speculated that the great recession of 2007-2009 will soon be ending. If the American recession does end this fall, it will mark the longest and deepest economic contraction since the 1930’s. To see the end of negative growth this cycle would be a great first step. But stock markets typically don’t begin sustainable bull expansions until an economic recovery is apparent. Recoveries require a pick up in demand in the real economy that can increase revenues and GDP. So far evidence of a growth recovery is the key missing link in our picture.

The recent spate of less-bad earnings data has been born of companies slashing overhead to produce net income at any cost. This is the rational response of management struggling to stay afloat when revenues have fallen off a cliff. One of the painful after-shocks of deep cost cutting of course is the wake of unemployment and under-employment that it leaves behind. Unemployed people buy little. People concerned that they may become unemployed also buy less. It is for this reason that unemployment serves to prolong downturns and undermine the recovery.

Historically, in a typical recession the US economy has lost about 2 million permanent jobs. In this recession so far, 9 million full time jobs have been lost and 3 million people have been forced into part-time work. Traditionally there have been about 4 million people who are under-employed, meaning they are working part-time hours because they cannot find more work. This recession so far has 9 million Americans who report that they are looking but unable to find full-time hours. Under-employment in Canada has also more than doubled during this recession.

http://www.financialsense.com/Market/wrapup.htm