Tracking the economy

As part of my investment business, I track a number of research sites. Since the stock market hit its low on March 9, 2009, most investment categories have made a nice rebound. In general, most of the experts are expecting a fairly good overall result in 2009. Equities should be in the low double-digit range and fixed income high single-digit return range. If they are right, this will be a good recovery from a dismal 2008.

One service I use tracks 16 factors in measuring their forecast. Of the 16, 12 are supporting the bullish projection and only four are leaning away from it. Here are some of the highlights and lowlights in their crystal ball. Consumer spending is doing well, especially in non-discretionary items. Consumers drive our economy, so this is very good news.

Housing seems to be bottoming. Builders are starting to build again, but rising mortgage rates are a worry. Exportation of U.S. goods was positive for the first quarter of 2009.

Inflation appears to be in check, gasoline prices notwithstanding. Core inflation forecast for 2009 is 2 percent or less.

The monetary policy is helping in the short term. Increasing the money supply is a short-term fix. The U.S. dollar has stabilized in the past few weeks, but may be headed lower later in the year. Internationally, the developed countries are strengthening, but some of their exporting is weak. Emerging international countries are firing on all cylinders. Thank China for much of that, due to their stimulus policies.

Domestic credit has improved from earlier lows. We are close to normal, but still have a way to go to be considered “normal.” Bond yields are extremely positive. The difference between corporate bond yield and treasuries is still quite strong. Corporate profits, in general, may have bottomed in the first quarter of 2009, due to aggressive cost cuts. They should improve.

There are some areas that remain of concern. Business spending is still off. Inventories are still high and businesses are being cautious. The labor markets are still weak. Unemployment is likely to rise to 10 percent. The government fiscal policies are a huge worry. The budget deficit is becoming a bigger issue.

As you see, the overall factors point to economic improvement. Of course, the experts always hedge their bets by saying that unknown events could throw a monkey wrench into these factors at a moment’s notice.

If you look at the Dow Jones Industrial Average as a measure, it has recently hovered around the 8,500 figure, which is a nice rebound from March’s low around 6,500. It is still a long way from the October 2007 high of 14,400. It certainly won’t get back there quickly, but some stock market gurus think now is a good time to look at stocks in a diversified portfolio. Also, don’t forget the bond market. If the bond experts are right, high single-digit returns for 2009 aren’t bad either.

Call or write Tom at 1030 Seminary St. Ste D, Napa CA 94559, 254-0155, fax 254-0158 or e-mail suntrm@aol.com.

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