This post previously appeared at the author’s blog.
The great run-up in equities has done little to change the minds of the vocal bears. We are constantly inundated by media stories of gloom & doom – presumably because that is what gathers the most eyeballs.
There is good reason for the prevailing negative sentiment, of course: in 10 years, investors have experienced two major crises which resulted in 50% or greater drawdowns in the S&P 500. This has been accompanied by large economic restructuring, leaving millions of Americans out of jobs.
The resultant damage to psychology has impaired many of the nation’s investors’ ability to recognise positive economic news. Yes: we have petulantly persistent unemployment problem, but that has actually become separated from our *employment* problem. The latter has actually substantially improved, gaining more than half a million payrolls since the series troughed.
The data continues to suggest an improving economy. There is a positive follow-through in almost all macro data, roughly following in the leading and lagging pattern anticipated for recovery. The healing begins with an increase in productivity, hours worked, production & investment. It is capped by the final sales that stem from new jobs created. In the past, relentless & levered consumer spending has provided a very resilient foundation for economic recovery.
The terrifying factor present in this deep recession is the delevering of the consumer.
By mid 2010, it became obvious that business was roaring back – but the consumer was still delevering. The economy was being dragged out of recession by government & business investment.