Recession recovery: frustrating politicians, the media, the public

By Paul Valickus Chairman and Chief Investment Strategist. St. Germain Investments Every story has a beginning, a middle, and an end. So it is with economic downturns. Recovery Stage One The stock market is the first to turn, typically many months before the economy bottoms. That's because the Market is a forecasting mechanism. It does not reflect what happened yesterday or what is happening today, but anticipates or forecasts the future. This serves to confound everyone. How can the stock market go up when the economy is so bad? Since March 9, 2009 the market is up 50 percent, despite some pretty awful economic news. The government is busy developing its plans to stimulate the economy and promising the country a future of record job creation. Recovery Stage Two Currently, some individuals, economists, business owners and journalists are actually feeling better; but not all. Economic indicators are mixed and confusing. Stock market prognosticators can't decide whether we are in a new bull market or a bear market trap. Most individuals, however, tend to extrapolate the existing trend. The unemployment rate continues to rise. Elected officials call for a second stimulus plan (even though only 20 percent of the first has been spent). History will later confirm the recession is over and economy has already begun to recover. Recovery Stage Three Few doubt that the economy is in a recovery mode. The question now becomes just how strong will the recovery. Sales and manufacturing activity pick up. Good economic news starts to overwhelm the bad. Inflation picks up a bit, but not too much, given this stage of the recovery. However, despite all the sunshine, the employment news remains bleak. The unemployment rate continues to rise, albeit slower than in the recessionary months. The media starts to run stories on the "jobless recovery" and the permanent unemployed. Everyone knows someone who knows someone who is still unemployed. "Grey Poupon" sales show no signs of improvement. As the economy recovers, the Fed begins to tighten and interest rates go up. Government officials are in a panic as re-election seems impossible. Recovery Stage Four Everything is beautiful. The economy is chugging along with no signs of serious inflationary pressures on the horizon. Bubbles are a thing of the distant past, or a game shared with small giggling children. 401(k)s are fully invested and cash balances are low. One hundred million "Life is Good" tee shirts are seized by U.S. Customs stopping one of the biggest Chinese pirating schemes in history. Conspicuous consumption is considered cool and downright fashionable. Another remake of the 1987 movie "Wall Street," which starred Michael Douglas, is in production even though all of the Jonas Brothers turned down the title role. Investors compare not last year's return on investment, but their five-year expected return. It's in the bag. Champagne sales are through the roof. Economists everywhere predict economic and business cycles are a thing of the past. We finally have control and got it right. Steady as she goes. No more booms or busts. There is Grey Poupon at every restaurant table right next to the ketchup, between the salt and pepper. Really. .begin to worry. See a dictionary for the definition of a recession. In all likelihood, the downturn may already have begun. Column provided to PRIME by: St. Germain Investment Management; 1500 Main St., Springfield, MA; Phone: 413-733-5111; 1-800443-7624; or visit their web site at www.stgermaininvestments.com