Encouraging Undercurrents

I know you missed the cartoons, so they're back. Enjoy this one.

Elsewhere, there are some real promising glimmers that are coming through in various economic and news reports that -- while a headwind to strong 2010 GDP growth -- is much healthier and better for the next true bull market cycle/run.

Yesterday's revised GDP down to 3% was bad, but what was good was the fact that state and local government spending contracted at a 3.9% rate in the 1Q of 2010. That's the largest quarterly decline since 1981. Sure, we could be cynical and say that such spending cuts wont last once government revenues return or that the cuts only occurred b/c cities are actually having to consider the real possibility of bankruptcy or debt restructuring - but still - its a small measure and its one that is absolutely required to get America to a more sustainable growth model - away from over-leveraging and back to financial stability and independence.

This morning - a report showed that personal income increased in April 0.4% while consumer spending stayed flat. Again, bad for the economy in the sense that consumer spending like that wont propel a strong 2010 recovery. But great for consumers who increased their savings rate from 3.1% to 3.6% and, like the US, need to become accustomed to a new de-leveraged lifestyle.

I continue to believe that the remainder of this year will be full of flat economic reports, minimal growth (2%ish GDP for 2010), and tough measures to address the deficit we've exacerbated (meaning taxes and spending cuts). This translates into near 0% fed rates throughout the year and unemployment maintaining their historically high levels as job creation is limited but corporate profitability remains strong. Small business remains stable but access to credit and/or interest in expanding is delayed out of uncertainty of the sustainability of the economic climate. It will feel like this, like a lingering recession, throughout the year.

But with undercurrents like these, hopefully we can navigate the European sovereign debt issues then our own, and emerge ready and prepared for a true bull market that exists on the back of healthy consumption, innovation and free flowing capital markets.