Building the Framework

I wanted to offer some quick thoughts that have been going through my head over the past month as the economy has begun to root a recovery of sorts and as expectations/hopes for a prosperous 2010 begin to form.

I decided to make a standard pro/cons list of what the economy looks like right now - you know, a good pro/con list always helps put things in perspective from a 10,000 foot viewpoint. So here is what I ended up with:

PROS = (1) corporate earnings beating expectations, returning to profitability and offering positive guidance outlooks for the 4Q of 2009 and throughout 2010; (2) a stabilized housing market; (3) a stabilized banking system; (4) a stabilized consumer; and (5) a manufacturing revival, or at least resurgence.

CONS = (1) minimal to no small business growth; (2) a more resistent consumer; (3) raises in taxes through either tariffs, corporate taxes, personal taxes, or state taxes; and (4) rising and what may prove to be stubbornly high unemployment for 2010.

So what's this tell me? Well I think it tells me what the market is reflecting (even if a bit exaggeratedly so). It's telling me that an economic recovery has rooted. Or more accurately said, the economy has stabilized and begun to show signs of blips of profitability here and there. That is step 1 in recoveries. This is the framework of the house if you will. Step 2 is move to a period of actual growth - something more than stabilization. This is where the consumer returns to spending ways as he feels safer/better, which spurs more profitability, which spurs more hiring and expansion by small/large businesses alike, etc. The thing is --- all the CONS seem to pose an obstacle (and one that isn't going away) to this transition to growth. Which makes sense considering that most economists see early 2010 as the time period when the economy may reveal its underlying inadequacies. However, if consumers start to spend again, and banks lend money so that small businesses can expand again (without lending and causing inflationary pressures), then perhaps the resilient US economy can turn these seeds of stability into something substantial. And people say money doesn't grow on trees. ha.