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The Cycle

April 7, 2010 – 8:58 am

Signs of a recovery are everywhere though no one seems to believe any of it. Jobs for March grew for the first time in a couple of years even if you take out the temporary census workers. Manufacturing has been rising as the ISM report is and has been above the 50 mark for months meaning expansion not contraction for our industries. Productivity has spiked as it always does coming out of a recession as employers wring more work out of their current employees before they are forced to start hiring again.

Still this recession was so deep that we have to go back to the 1973-’74 recession for comparisons. Like then as now no one believed that we were coming out of the economic slump. Oil prices spiked, housing collapsed, over 2000 Savings and Loan banks collapsed and fear was rampant. Back then the stock market rallied a strong 75% from the bottom. All this sounds very familiar as we have experienced the same events in this recession.

The reason it feels so bad this time is because very few people remember the last big recession. It happened 30 plus years ago. That is ancient history and many investors and traders are not old enough to remember or were not born. The older generation remembers but maybe our memories are faded. Regardless, each recession is the same: a fall in stock prices, a fall in economic activity, high unemployment followed by a rise in stock prices, a rise in economic activity and finally jobs begin to return. The pattern does not change. What changes are the depth and timing. We are in recovery mode but it appears to be slow and painful. That is actually good for stock prices as fear is keeping a lot of money out of the market. Eventually some of that money will return.

When the frightened money returns the stock market rally will start its unavoidable fall, but again, it is when that is the question.

Good Trading
Steve Peasley

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