Democrats & Liberals Archives

Obama's Bull Market- The Economy is Roaring to Life!

It is easy to be a bear, and since the fall of 2007, the economy has provided plenty of reasons to despair. We hit bottom in March 2009, shortly after Obama’s inauguration, but since then we’ve seen a remarkable bull market for equities. Now it appears the bull market is extending the recovery to the rest of the economy. Let’s consider a few factors and what this means for elections next year.

When it comes to the economy, pessimism has pervaded the public viewpoint since the fall of 2007, when the stock market crashed. By the time it hit bottom in March 2009 it had fallen about 50%. Oil prices rose and remained high. The financial sector imploded. We experienced a credit freeze. Real estate tanked and stayed tanked. Unemployment skyrocketed.

And yet, beginning just two months after Obama took office, the stock market began a bull market which has persisted to this day. Normally, the economic cycle goes through a series of predictable stages which are easy to understand, but hard to see when in the midst of it;

1) Recognition. The market seems to be moving in one direction. There is resistance and confusion about the movement; many proceed with caution, many more refuse to recognize it.
2) Acceptance. The recognition becomes full realization. Most agree on the trend.
3) Capitulation. The new trend will seemingly always be the trend. Everyone agrees.

As hard as it may be to believe, The ISM report, a major manufacturing index, came in at 55.3 last month, up 1.8 points for May. It has been above 50, the level indicating expansion in the sector, for 23 straight months. This latest jump was significantly higher than expectations, and in addition, a minor number for manufacturing in Chicago also unexpectedly jumped.

As a result, the stock market- already in a long-term bull market- jumped over 5% for one week, it's best performance in two years.

Commodity prices have peaked, including gold and oil. The oil prices should stay under control thanks to the market intervention through timely releases from the Strategic Oil Reserve. Abroad, the Greek situation has been at least temporarily resolved. Interest rates are low and stable. There is no sign of inflation. What little occurred originated with worldwide commodity prices, especially oil, and had nothing to do with domestic monetary policy.

It's happening. The economy is roaring back to life. That brings up the critical political question. What will the 2012 election look like in a good economy? Despite the best efforts of the GOP to kill it, the economy is coming on strong, and in the next six months, the idea of a healthy recovery will gain widespread acceptance. I think we all know what this good news will mean for the election. I hope this good news also extends to all of us on a personal basis.

Posted by phx8 at July 3, 2011 12:00 PM
Comments
Comment #325220

phx8


“Commodity prices have peaked, including gold and oil. The oil prices should stay under control thanks to the market intervention through timely releases from the Strategic Oil Reserve.”

oil and gas prices are back on the rise. the one time release from the strategic reserve did little but give temporary relief.


http://online.wsj.com/mdc/public/page/mdc_commodities.html

“There is no sign of inflation.”

HUH!

“What little occurred originated with worldwide commodity prices, especially oil, and had nothing to do with domestic monetary policy.”


do you just make this stuff up as you go along?

Posted by: dbs at July 3, 2011 1:52 PM
Comment #325221


That’s great news, I imagine unemployment will be back down to 5% in a few months.

Comodity prices and overseas profits, and that bodes well for our domestic economy?

What is your thinking? They are making so much profit that sooner or later they will invest some of it in America?

The competitive issue has not been resolved to the satisfaction of the market.

Posted by: jlw at July 3, 2011 1:59 PM
Comment #325222

dbs,
Check the chart you linked. It supports my case. The peak is clear, the decline dramatic.

jlw,
Unemployment is a lagging indicator, and it will take time to decline significantly. There are many problems. There are always many problems to support the bear’s side, no question. Just recently, the Chairman of the Federal Reserve announced the growth rate projection was being cut back to 2.5%, causing much pessimism. Yet that number still represents growth, and suddenly talk about higher sustainable growth rates is regaining traction.

Many people focus on the unemployment rate, but the more important number is non-farm payroll, which comes out next Friday. Over the next few months I suspect we’ll see an upward trend.

It’s easy to be a bear about the economy. I’m not disagreeing about continuing issues. There are a lot of them. However, buried beneath the relentlessly bad news is some very, very good news, and I think it would be a mistake to ignore what is happening. There is cause for optimism, and that is not something I say lightly.

Posted by: phx8 at July 3, 2011 2:19 PM
Comment #325227

The price of gas is up 20 cents a gallon since yesterday. We are eating chicken and fish, because we can afford the price of beef. Perhaps phx8 should make a trip to the nearest grocery store and see if prices are up.

The release of the SOR did nothing for the price of oil, but there was an attempt by the obama liberal administration to make political hay.

Posted by: Conservativethinker at July 3, 2011 2:47 PM
Comment #325229

phx8

you need to put it in perspective by looking at a shorter time span. click on the 3 month chart. you’ll see the price before the release, and the drop immediatly after. then continue on and you’ll see the short dip it caused, and then the price go right back up. the steepest decline came after the big spike, several months ago when gas was above $4 a gallon. the biggest decline happened well before the oil was releasd. the actual effect by the release was short lived.

Posted by: dbs at July 3, 2011 3:55 PM
Comment #325232

dbs,
The longer term ramifications remain, namely, that any attempt to speculate in oil futures is very risky, because if our government senses market manipulation, it may announce another release from the Reserve, and hammer speculators. Naturally, prices may continue rising as governments around the world compete for resources such as oil, and so commodity fueld inflation will still be a issue, but at least it will be an increase that happens in a more orderly manner, and not rapidly because of market manipulation through excessive speculation.

Like I said, it is hard to see a market turning to the good when we are so accustomed to a constant parade of bad news. I get that. Believe me. I hear all the bad news too. It has been going on a long time. Nevertheless, manufacturing numbers set the equities markets on fire last week. It caught everyone by surprise, and the increase was big. Now, much to the surprise of a disbelieving populace, we’re heading north. This time the gains will be more widespread.

Posted by: phx8 at July 3, 2011 5:00 PM
Comment #325234

phx8

“The longer term ramifications remain, namely, that any attempt to speculate in oil futures is very risky, because if our government senses market manipulation, it may announce another release from the Reserve, and hammer speculators.”


commodity speculation is already very risky. i think you over estimate the effect on speculators that the possibility of more released oil from the reserves will have. there are so many other factors that can affect price, that this is just one more. IMO it will carry no more weight then any of the other factors affecting price fluctuation.

Posted by: dbs at July 3, 2011 6:16 PM
Comment #325236

When oil futures spiked at the end of the Bush administration, I thought it was reflecting tight demand. The fact that oil prices collapsed proved speculation was playing a big role in that market at the time.

Commodity speculation is very risky. I really don’t recommend it for anyone who doesn’t actually own the physical commodity for delivery. I used to know something about it a long time ago, but today I still remember how to look at charts, trends, and so on.

‘The trend is your friend… until the trend ends.’ Heh.

Posted by: phx8 at July 3, 2011 6:40 PM
Comment #325237

phx8,

The economy is gradually improving. But, there is a long way to go. Americans are coming off a debt binge fueled by a housing equity bubble. We should remember that approximately $14 trillion dollars of equity were lost when the bubble burst in 2008. It will take time to work out the household debt problem resulting from that loss. According to a recent Federal Reserve report only about half of that lost equity has been restored. Patience is the key. Panic over the federal debt is the last thing that we need now. We don’t need another 1937 recession to stall the recovery.

In my opinion, the debt ceiling debate is a huge distraction from addressing structural problems with the economy, i.e., jobless recovery, over financialization of the economy, trade imbalance, stagnating wages, over dependence upon consumer debt for aggregate demand, energy dependence, etc. But, the only thing we hear from conservatives is that this is a crappy situation. Thanks, Sherlock. No positive alternatives. No policy suggestions for improving the job situation. Just the same old party of NO.

Posted by: Rich at July 3, 2011 6:46 PM
Comment #325274

Fair or not, the big trends make a difference. The economy recovered in 1991, but Clinton folks still called it a jobless recovery and they had a point.

Right now it looks like the term “jobless recovery” will play well with Obama. I doubt the rate will get down as low as it was when he was elected. Presidents take the blame.

Let’s see what the unemployment rate is like in Sept of next year. If it is lower than it was when Obama was elected, he might be able to claim a good economy. If not … jobless recovery.

Posted by: C&J at July 4, 2011 4:57 PM
Comment #325278

C&J,
At first blush, it’s hard to see why this recovery should be any better than the jobless recovery between the Bush recessions. About 50,000 manufacturing plants- not jobs, plants- left the country during the Bush years. However, there is a lot of pent up demand and a lot of money on the sidelines right now. We’re coming out of a capitulation phase. The bad news is already out there, the stocks sold, the employees laid off, real estate down, and most people do not believe it will ever improve.

Unemployment is a lagging indicator, the last to reflect improvement, but the one most people actuall feel. It’s never a good idea to invest too much in just one number, such as the non-farm payroll number coming out this Friday, because the number is just too volatile, but in the next few months I think we’ll see several convincing numbers in a row. It may be a result of the fact we’re coming from so far down. It may be due to the massive stimulus that have been applied to the economy. Regardless, it will be seen as a success for Obama, and maybe this time, a lever for making the adjustments to fix the underlying problems of a jobless recovery (infrastructure, outsourcing, health care); that, in turn, will allow adjustments to revenues, and reduce the deficit and debt in short order.

For some reason, the GOP seems absolutely incapable of addressing job-related issues. They focus on deficits and debt, which are symptoms, not the cause. They are a problem, of course, but not the root; they are a consequence of bigger, more fundamental problems.

Posted by: phx8 at July 4, 2011 6:24 PM
Comment #325281

C&J-
I think you should be concerned that even if Obama is politically weak on the jobs front, Republicans can’t exactly cover themselves in glory on that matter. All they can do is tout the same old policies they had before the crash, which weren’t working then, either.

It’s not enought to deprive Obama of acheivements on the economy. Republicans had to demonstrate they were better at job creation. They haven’t, and really, they can’t. Their political dogmas cannot be interpreted flexibly enough to have them do anything new, bring any new ideas to the table. All your people can do is censor and scorn other people’s ideas.

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