Six months ago economists and financial experts debated three scenarios; 1) the stimulus would take until September to pull us out of recession, 2) the stimulus would be good short term, but after September it was anyone’s guess, and 3) after September the stimulus would be over and the economy would get worse. The next few months will determine who gets bragging rights.
Many analysts are saying the recovery is “in sight”, or “around the corner”, but this amounts to so much wishful thinking for several reasons. Two things about the recent run-up in the stock market have been the low volume and the complete absence of small investor. Institutions, professional traders, and possibly cash injections from the Fed have been the only players so far. Without congressional reform of the system, there is no reason for the small investors to get back in the game.
Whatever one’s opinion of the cash-for-clunkers program, one thing is certain; it’s now over. Detroit will have to get back to selling cars the old fashioned way. New home buyers and people refinancing have largely played themselves out. Delinquencies on loans are still rising. The housing market is set for another stall. There are still the commercial real estate and credit card markets that haven’t come into play yet.
At some point the Fed is going to pull the plug on the bailout bonanza and when they do, a lot of investors will pull the plug with them. Sooner or later, the Fed will also need to raise interest rates, unless the plan is the complete destruction of the dollar as a viable currency. Raising rates in a downturn is what they were hoping to avoid, but it looks like they have only postponed the day of reckoning.
I wish I could be optimistic. I used to enjoy playing the stock market and I hope to get back in one day. But, I see more hard times ahead. Good luck everybody.