The Big Gamble

In Texas Hold'em it's called The River or 5th Street. In the real world, its called a recession or a recovery. And now its time for the cards to be shown.

WHY?

There is a strong consensus (75-80% of economists) that the severe recession the US economy has been experiencing will be over in the 2Q of 2009. This means that the economy should show positive GDP or, in everyday terms, GROWTH in the 3Q of 2009. That means starting day 1 of July 2009, the economy should be growing - businesses restocking inventories and generating more revenue - joblosses slowing and eventually job creation returning.

Great news, right? Yes, IF it turns out to be true.

On the other hand, you have the stubborn bears. Some who predict that the recession won't end until the end of the year and that GDP won't be positive until 1Q of 2010. That's a HUGE and distinct difference. We're talking two different tales for the next 6 months. Sure a bear predicting -0.5% GDP and a "bull" predicting +0.1% GDP aren't that far apart. But the current debate is more like bears predicint -1% to -0.1% and bulls predicting upwards of +2.8% GDP in 4Q 2009.

WHAT'S THE "TELL"-TALE FACTOR?

It's pretty simple really -- the US consumer. Is he (sorry, I'm old-school and not gender sensitive on the grammar reference) the resilient, no-can-harm, optimistic and hopeful consumer that drives 70% of the economy to positivity and growth? Or is he the debt-ridden, starting-to-save, fearful-of-losing-his-job, or can't-find-a-job-and-now-accepting-part-time-work individual that's going to continue to reduce his discretionary spending and keep GDP and (thus) businesses and inventories from growing? Forget the fact that the latter may be the more HEALTHY individual financially speaking, the question provides the IMMEDIATE answer to the next 6 months... was the past 5 months a bear market rally or the start of a bullish trend?

THE PAYOFF?

I don't know. But apparently 70% of market viewers and economists vote bull. I think the fundamentals point bear. And when you're talking fundamentals, you're talking long-term truths.

UPCOMING BLOG SERIES

Over the next five or so blog posts I'm going to be discussing GDP - the 2Q 2009 results. What makes up GDP. How its flawed. But for now just know the following. The headline GDP number for 2Q 2009 was only -1%. Almost positive and an indicator for strong bullish direction, right? Also know that consumer spending declined -1.2% compared to a rise of +0.6% in 1Q 2009. Sounds like a saving consumer and a possible bearish direction, right? That's just it, the month of July and the next 2 months will determine the "bear market rally" versus "bull market" debate. It's FINALLY crunch time. So, show your cards America because the River has been dealt.