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Economic Review

7/27/2010

Is it Bubble time to the rescue once again ??

With job growth at a pathetic pace, a continued soggy state of affairs in both residential and commercial real estate and with retail activity also showing sings of slipping, the pundits sounding the alarm for a double dip are growing.  Even the mighty Ben Bernanke voiced concerns in his latest testimony to Congress.

Given all this negativity, it appears that some type of artificial quick fix stimulus may be in order to avoid a natural economic downturn, which would hurt in the short run but help cleanse the system and provide a more healthy system for the long run.  And the quick fix may be??? Either an Equity or Fixed income bubble boost.

During 2009, US Equities posted exuberant and phantom-like gains despite the sputtering US economy.  The result was a mild rebound in the US housing market and consumers picking up their pace of consumption into the end of 2009 and beginning of 2010.  The gains in Stocks almost seemed like a mini-bubble to help boost economic activity.  However, once the bubble move was over, into the end of the 1^st quarter of 2009, so to was the mild economic recovery, where once again things are tipping into another dip down.

But wait….for some odd reason, despite the weakening and uncertain state of economic fundamentals, US equities appear to be on a tear again !!  Unbelievable !! and just in case Stocks can’t manage to continue their upside phantom-like gains, another bubble market could help things out and this is the Treasury market.  A rally from current levels would provide a nice spurt of refinancings and perhaps breathe short term  life into real estate given the rates would be near zero.

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