Thursday, August 13, 2009

The Recession is Over -- Productivity Soars

Our economy is growing. It is growing from a lower level but it is growing. The fellow who bought a stock at $100, saw it drop to $50 and then rebound to $75 is still talking about how his retirement kitty is down 25%. The fellow who bought at $50 is enjoying the end of the recession. The fellow who bought at $100 lost 50% when the stock fell to $50 but the fellow who bought at $50 has made 50% at $75. When the first buyer gets back to even the second buyer will have made 100%. If the fellow who bought at $100 managed to buy a little more at $50 then he drove his break-even price down by an significant amount.

Share prices and economic growth are linked like a couple of cows in the pasture, one might be more eager to get to the barn than the other but they will not stray too far apart. The 50% jump in share prices over the past 5 months will show up in stronger economic numbers in the months ahead.

Yesterday, I was challenged by the statement "I wish someone could show me the signs of economic recover, because I can't see any." When I mentioned share prices as a sign, the anguished look told me that I had opened a festering wound. Further discussion revolved around real estate and we agreed that it will take years before a full recovery in real estate prices. Once again, those who buy now will have made great returns by the time others get back to even.

Other Indicators:

Other indicators that the recession is over include the turn in trade and the jump in productivity. Income and GDP are going to grow partly because US exports will rise. The five year decline in the US dollar has made our goods cheap. The unemployed in the USA will benefit from the world wide recovery.

While there are many other indicators, the spike in productivity of 6.4! is a big number. It is the kind of spike that typically comes at the end of recessions. Productivity leads to higher profits and lower priced goods. Good times are on the way! The economic elevator is in the sub-basement but it is headed up!