By: Todd Wheatley
(c) IQ-2k   09-19-09

As a prelude to the 2008 presidential election CNN used the tag-line "Issue #1" in reference to the national economy. By the close of the election "Issue #1" would become all the news with the imploding banking sector and stock market. One year ago, in the middle of September, "The Great Recession" had begun.

Today the stock market is up more than 20% off of the lows and even the housing market is showing signs of recovery. News analysts and economists across the board are uniting to inform the weary public... GDP is on the rise. The recession is over. But with a 9.7% nominal unemployment rate and a structural rate closer to 12% this JOBLESS RECOVERY seems more of an oxymoron.

Even more ridiculous, health care has become issue number one. The change people voted for has yet to materialize -- the wars in Iraq and Afghanistan are still being fought. None of the banking regulations have changed and no one was held accountable for the financial meltdown. Even the initiators of the so-called "liar loans" were allowed to keep their vast ill-gotten profits.

The numbers, however, are hard to argue. The stock market is up, housing is up, consumer debt is falling, and finally there is the uptick in the GDP. Yet two other numbers bear watching: the price of oil, and the price of gold. Both up.

Gold is on the rise due to a falling dollar and conventional wisdom would favor a further rise as more investors jump on the bandwagon. The smart money got in before $900 an ounce and is now looking to get out as the uncertainty of the Christmas season approaches. Will retailers have a happy holiday or not?? I predict that based on the early numbers of shoppers buying consumer electronics the holiday season will be at least fair - yet not any better and not much worse.

As it stands today - the health care proposal will not pass. First the bill has to pass the senate then it must go into a conference committee for entry into the house. Popular support for this measure is falling fast and when the true cost is put before the public many legislators will not risk reelection to support it. If by some miracle the measure does win then the budget uncertainty will cause a further disruption to the value of the dollar.

So while health care remains the top issue, let's not forget about the wars. Afghanistan will cool down with the temperatures as usual, but who knows what next Spring will hold. Iraq could flare up with the elections in January and even more with the scheduled troop withdrawal. At any rate the current policy of security at any cost threatens the stability of the United States more than any other factor. War is expensive.

In conclusion, the accumulated wealth and mobility of capital within the United States should further stabilize and strengthen the economy. While outside the borders growing economies like China and India could become the source of a future bull market. But the overcast of war portends dark times.


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