Mother-of-all-V Recoveries Continues

The steady economic recovery is continuing according to the Conference Board economic indicators released on Monday.

The US has major long-term economic and social issues to manage. Still, there can be no denying that this Stock Market and Leading Economic Indicators (LEI) has been the greatest V shaped recovery of my lifetime.

The index of leading economic indicators beat even the most optimistic forecasts and rose 1.4% in March. Following upward revisions for Jan and Feb, the surprise surge in March now completes 12 consecutive gains for the index.

The coincident index, which measures the current economic conditions, also rose 0.1% in March. Of the four indicators in the coincident index, the largest positive contribution came from nonfarm payrolls. You'll recall that for March, the Labor Department reported that the U.S. economy netted 162,000 jobs -- the largest seasonally adjusted increase in three years.

Ataman Ozyildirim, an economist with The Conference Board, highlighted the positive jobs metric: "Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction."

Now 12 Months Strong of LEI Increases

While recovery skeptics remain, it will be difficult for the economic naysayers to find any negative news should the labor market continue its positive momentum toward significant net new jobs in 2010.

The index LEI has shot above the levels it saw during the 2007 USA stock market run up to DJIA 14,400 levels. But note how the coincident index indicators look like they've barely begun to rise. I've never seen this great of a divergence, has anyone else? Is this a good or bad sign? Does this foretell a reversion to the mean?

Mother-of-all-LEI Recovers

Did you find the sharp turn in the market upward last year surprising? Is the continued thundering stampede of bulls running upward still totally baffling to you? Yes. Well then, take a look at one of America's most accurate predictors of future economic health (above).

The LEI index (leading economic indicators) has gone straight upward,for one year. It now stands at a new four year high. A high point above the 2007 level when the DJIA reached the 14,000 level.

This has been the mother of all LEI recovers. While we're not experiencing a V shaped employment recover we sure had one of the sharpest V shaped LEI recovers in history.

Hopefully this sharp 2009 market reversal, which was even greater than the 2003 bull run has convinced everyone that, if you're going to invest in the market, you need a long-term plan. No, your plan shouldn't be: I'll only invest after everyone agrees the economy is firing on all cylinders and sell only after I've watch my portfolio decline by 50%.

Over 35 years of market experience has taught me, more than all my finance classes, that stock markets are forward looking not backward looking.

Too many people choose to liquidate all of their stock holdings during the horrible market down days of November 2009 through February 2010. Worse yet, many choose to lock in their market losses AND take the money out ignoring their Uncle Sam's 10% early distribution penalty.

So, they: 1) Locked in there market losses; 2) Where not able to take any capital loss deductions on their tax returns; 3) Had to pay a tax 10% penalty for early withdrawal; 4) Most likely where pushed into a higher tax bracket which resulted in more tax due than normal; 5) Missed out on a once-in-a-life-time market turn around.

Below are the micro details of the LEI along with economist comments. The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February, following a 0.3 percent gain in January, and a 1.2 percent rise in December.

Ataman Ozyildirim, Economist at The Conference Board: “The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment.”

Adds Ken Goldstein, Economist at The Conference Board: “The indicators point to a slow recovery this summer. Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months. ”

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose 0.1 percent in February, following no change in January, and a 0.1 percent increase in December. The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in February, following a 0.2 percent decline in January, and a 0.4 percent decline in December.

Note: I'm still sticking to my prior post regarding caution, buying more conservative dividend plays and selling the biggest winners into this advance now. It's possible we can hit Dow 11,000, before any pull back. But I'll be selling into advances and still betting we see another 5-10% pull back beginning no later than May. See prior post for more details.

First GDP Growth in Four Qtrs

The 3.5 percent GDP growth rate in the July-to-September quarter represented the first positive growth in the figure after four straight quarters of declines.

It was the largest gain in two years. But the concern is that this growth will falter given the huge problems still facing households.

Yes, much of the increase can be attributed to the governments controversial Cash-for-Clunkers and New Home Buyers refundable tax credit program. The real test for the economy will be the upcoming Q4 2009.

Most economists don't expect the economy to grow quite as much in coming quarters, but they aren't forecasting a double-dip recession, either. Most see growth in the 2% to 3.5% range. The adjustment in inventories could add to growth for several more quarters.

The big question confronting policymakers, investors, consumers and economists is whether the economy will be able stand on its own as the federal government's stimulus begins to wane.

Here is a breakdown of this quarters GDP drivers:

2.36 percentage points of the 3.5 percent third-quarter growth in GDP came from consumer spending. Car sales alone represented 1 percentage point of total growth, reflecting the success of the government's Cash for Clunkers program.

This is the biggest question facing the fledgling recovery, given that consumer spending represents 70 percent of total economic activity. Can consumers keep spending with unemployment at a 26-year high of 9.8 percent and expected to keep rising until next summer?

1.22 percentage points of the 3.5 percent GDP growth came from investment, with nearly half that strength coming from a surge in residential construction, an area that had been plunging since 2006.

The $8,000 new home buyer refundable tax credit was a major contributor along with falling prices. much of Business spending on computers and other equipment showed gains but spending on commercial structures such as office buildings and shopping centers continued to decline.

0.48 percentage points of GDP growth in third quarter came from the increase in government spending.

All the strength in third-quarter government spending came from a 7.9 percent rise in spending at the federal level, reflecting in part the boost from the stimulus program. That offset a 1.1 percent drop in state and local spending, where budgets have been hard-hit by the recession. The expectation is that the stimulus program, which is helping states weather the recession, will keep government spending growing in coming quarters.

US National Activity Index

Consumer sentiment is greatly impacted by the jobs market and their perception of the USA economy going forward. Consumer sentiment began rising in the first two quarters but has most recently declined.

The magnitude of the surge in the stock market was a surprise to everyone. Examining the US National Activity Index helps us better understand the panic market selling in Q4 2008 and Q1 2009 followed by the biggest V-shape market bounce back from the deep dark abyss since the 1930's.


CHICAGO FED Business Activity Report-- At –0.63 in September (up from –0.96 in the previous month), the index’s three-month moving average, CFNAI-MA3, suggests that growth in national economic activity was below its historical trend. However, the CFNAI-MA3 in September improved to a level greater than –0.70 for the first time since the early months of this recession. For the four previous recessions, the first month when the CFNAI-MA3 was above –0.70 coincided closely with the end of each recession as eventually determined by the National Bureau of Economic Research (see top chart above showing the last three recessions).


The chart above shows the monthly change in the CFNAI-MA3, which has been positive for the last eight months (February through September), the first time since 1975 of eight consecutive monthly increases, and similar to the seven consecutive monthly increases from December 2001 to June 2002 that marked the end of the 2001 recession (see shaded areas).

What is the National Activity Index?

The index is a weighted average of 85
indicators of national economic activity.
The indicators are drawn from four
broad categories of data: 1) production
and income; 2) employment, unemployment,
and hours; 3) personal consumption
and housing; and 4) sales, orders,
and inventories.

A zero value for the index indicates that
the national economy is expanding at its
historical trend rate of growth; negative
values indicate below-average growth;
and positive values indicate above-average
growth.

Interest Rates Foresee No Inflation

(10-18-09 update)
A run away inflation train is what many believe we'll see resulting from tons of USA money printing and borrowing.

Many of us recall the rising inflation days of the 70's exploding into ultra high interest rates that peaked around 1981. But if history is to repeat itself then we should be seeing rising interest rates in 2009 not declining (or stable) rates. And our governments selling of 30 year bonds at less than 1/2% interest rates to investors (during the fall 2008 financial panic) was the shrewd financial move of this decade. What does that make the buyers of those bonds? Can you say...fools.

The charts below show no rising interest rates (for now).

The times, as Bob Dylan sang,"..they are a changing" and someday we (USA) may have hyperinflation or stagflation again. But for the next year just expect Japanese style stagenation. After all, if the Japanese can be in a 20 year stagnation cycle of low inflation and low interest rates why can't the USA have the same. Japan has even had much lower average unemployment than the USA with low inflation. But wait, I'm forgetting one gagantic detail. Our excessive national debt. True that will come into play but I'm perdicting later not sooner.

The countries with the greatest potential for inflation are India and China. But they can view that as more a sign of their positive economic outlook and growth from much lower GDP levels of 20 years ago.

Why has the USA market continued to climb?

Less market fear and lower interest rates combined with some economic green shoots has resulted in the greatest American market bounce back since the 1930's. And lower corporate borrowing cost and slashed employee staffs mean higher future profits for large corporations even if revenues do not grow.

Forget what you want to believe and examine the data. During the 70's and 80's interest rates rose and fell but as you see in the charts below the trend was rapidly rising. This is the opposite trend of what we've experience over the last 20 years. So, while traditional beliefs may not have changed clearly the data shows something has changed. So what has changed?

What causes inflation?

Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon....It is a situation in which too few goods are being chased by too much money". The monetary policy is as lose as it gets. Economic's teaches us that inflation has two key drivers. #1. Cost-Push Inflation, workers’ ability to negotiate higher wages for themselves and business ability to raise prices. Rising commodities prices and product shortages can also cause this problem. We have neither. #2. Demand-Pull Inflation, resulting from an increase in aggregate demand, caused by an increase in money supply and increases in government and consumer purchases. We have both with one big exception. Consumer spending is only modestly recovering.

True, government gifts for spending like Cash for Clunkers $4,500 and $8,000 for first time home buyers resulted in a spike in spending. But at this point no bear or bull nor economist believes consumer spending is rapidly rising.

Therefore the U.S. monetary policy will (most likely) maintain the Fed-Funds rate under 1% through 2010. You can thank (or curse, if you have large amounts of savings earning near zero rates) our governments for keeping rates low like they did in 2001-2004. But unlike 2001-2004 we have record breaking amounts of unemployed and under employed people. And the (2001-04) housing building and spending boom is now bust. So, I'd bet we'll not see any meaningful spike inflation until late 2010.

What about our gargantuan national debt?

There’s also the inconvenient truth of U.S. debt, running up such gargantuan fiscal liabilities, both privately (consumers) and publicly. And just like the 70's once again were spending a fortune on war and the military. This time it's in Iraq and Afhganistan. Combine this with our future social security and medicare liabilities. No question we have long-term issues that could result in rapidly rising future inflation. The only hint of big inflation now is oil prices. Oil prices are now inversly correlated to the value of the dollar more than world demand and supply factors. Still one big variable has changed from the 70's that is keeping inflation low.

One big change from the 70's. One word. CHINA.

Yes, our enemy for 35 years has evolved into the worlds factory for cheaply built products (thanks to it's inclusion into the World Trade Organization). China has become our banker and product supplier. We have become their most important export market. We are their consumer market.

Why all the worry over China's willingness to lend us money? Why the worry over China dumping dollars? Why the worry over China wanting to cash in their USA treasury bonds? Folks, forgive my bluntness but these are nonsense worries (if only in my mind). It's like saying we need to worry about drug dealers not wanting to sell drugs for profit and employment to drug users.

I hear a few people saying: what is this Madman-Across-The-Water saying?

Think about this. The USA is China's number one export market. China will gladly work to keep us (and the world) addicted to buying their goods to keep their labor force employed. And do you really believe that China wants to kill the U.S. Goose that lays their golden eggs? No. Just because you're a Communist does not mean you're an Economic Neanderthal Man. There's no better way to beat a Capitalist then at his own game and on his home field!

30-Year Conventional Mortgage Rates, 1971-2009:


30-year Treasury bond yields, 1977-2009:


Baa Corporate 30-year Bond Yields, 1962-2009:


AAA Corporate 30-year Bond Yields, 1962-2009:


Prime rate, 1955-2009:


Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. He (and many other economist) have pointed out that historically low 30-year mortgage rates reflected relatively low market expectations of future inflation. Some commenters (and Robert Shiller on CNBC) pointed out that the Fed is buying mortgage securities, which is temporarily keeping 30-mortgage rates low, rather than low inflation expectations keeping rates low.

What we believe and what is, are often two sides of a coin.

But the charts above show that other long-term rates (30-year Treasury bond, 30-year AAA corporates and 30-year Baa corporates) are historically low, as well as the prime rate being historically low, and these low rates wouldn't necessarily have anything to do with Fed purchases.

Question: How could all of these long-term rates be so low if there were inflationary pressures building up in the economy, which would lead to higher expected future inflation, and higher nominal long-term interest rates, and not historically low long-term rates?

We each have different inflation rates.

Now when it comes to inflation, each person or family will have a different index based upon what you must buy and want to buy. If you are an older American family, whose house was paid off years ago and who now needs to spend large sums of money for health care and college education (for your children or grandchildren) then your real inflation rate is sky high.

If you are young with no health care expense and renting or buying a home at today's ultra low mortgage rates along with lots of fantastic electronics goods at excellent low prices your inflation rate has been declining dramatically from 20 years ago. In the 70's I recall getting annual letters from my landlords explaining why due to inflation my rents would be rising by 7% even thought 85% of the landlords ownership cost in the property were fixed. But everyone just came to expect rising rents. Today rents have not only been level but in many cases they had to declined to keep renters. Each person or family's situation will be different.

But while each person's inflation index will be different, in aggregate the USA CPI is still the best gage of our nations inflation rate (consistently applied over time). I would agree with the debate that we need to examine the relevance of the variables making up the index to our lives and required expenditures' vs. desired expenditures'.

Buy Doom Sell Boom

Now that the DJIA just hit 10,000 (again) I thought it would be interesting to listen to what the wanabe market gurus and high paid experts were saying in the first half of this year. Here are just two examples of the many classic doom perdictions.

I'll be the first to admit the most advance I was looking for was DJIA 9,500. But it has become clear to me I need to be looking to buy stocks on break-outs and pull-backs. And one can always find lower risk stock laggers to hold into year-end (as discussed in prior articles). Each day as I scan the market details I continue to find strenght in many stocks. Many stocks are above their 2007 levels. A few with excellent earnings outlooks like Apple and IBM are near their 2008 all-time highs!

But even in July, I was reading non-stop articles on SeekingAlpha.com from their mega posters preaching how, at DJIA 8,200, the market was due for a correction back to 6,500. When it didn't happen they wrote articles telling you why the market was wrong and they were right. The real problem was just to many kids with great educations but like knowledge of market history.

The lesson to learn? One must establish a long-term savings and investment plan. And one must understand that the market is a leading economic indicator not a lagging indicator. If you wait to invest only when the economy is ideal...you are too late! If you only invest when the economy is horrible and the market has declined by 40% you certainly stand a better chance at higher long-run returns.

What now? You, need to understand this market momentum can continue to push the market up, back to last summer's pre-Lehman Brothers collapse levels ( around DJIA 10,500 or S&P 1200 ), by year's end. Yes, at this point forget thinking you will see a 10% correction, about the most we'll get is 5% because traders and investors see benefits in buying the dips again. Now this momentum can turn negative in 2010 just as it did in 2002. But as professional traders say, "You need to trade the market you see not the one you think it should be" and "The trend is your friend" the two best money making ideas they never taught me in BBA or MBA investment classes.



The young man above was just one example of how individuals will extrapolate out the current trend (when making market predictions). Listen to one of the many high paid experts who was perdicting the DJIA would fall to 5,500 and the S&P 500 would fall to 400! Folks the S&P 500 is now at 1,100 ---- 275% above this guys perdiction.

In September I gave readers just one more example of how Blogger Youthful Investment inexperience (in understanding stock markets and the data behind charts) cost his followers thousands
Eleven Reasons These Charts Are Worthless

The 80's vs 2009 Economy

Did you think a 6.5% mortgage rate was high? How would you like a 1981 18.5% mortgage rate?

You can bet those 1981 Paul Volcker (Treasury Secretary) induced interest rates prevented the housing bubble created by the 2001-2005 monetary policy.

This chart is for all those not old enough to experience truly high interest rates and those who forgot how we earned 9-12% risk free in our Bank CD's back in 1981. Back then it paid to take no investment risk.

Today there is around $3.5 trillion dollars inside mutual fund MMFs earning just a speck more than zero (1/4%). Today is the inverse of 1981. The savers are subsidizing consumer spending, business borrowing and the big federal government bail-outs for the financial industry.

So, if you happen to be in this boat, go find yourself a good dividend paying mutual fund or portfolio of high quality dividend paying stocks in different industries. Stocks like Lilly (LLY) or Verizon (VZ) which both pay 6% yields and give you the possibility of appreciation. Neither of these two stocks have not participated in the markets 55% because they were considered defensive stocks by money managers.

Here are some recent articles on dividend paying stocks worth reading.

Dividend stocks for low excitement, high returns

The World's Best Dividend Stocks

Seeking Alpha dividend stock articles

disclosure: On 9/23/09 I invested in Lilly and Verizon.

Economic Indicators all Positive for the First Time Since November 2007

Philadelphia Fed -- The region’s manufacturing sector is showing some signs of stabilizing, according to firms polled for this month’s Business Outlook Survey. Indexes for general activity, new orders, and shipments all registered slightly positive readings this month. For the first time since November 2007, all of the survey’s broad indicators were positive.

Although firms reported continued declines in employment and work hours this month, losses were not as widespread. Most of the survey’s broad indicators of future activity continued to suggest that the region’s manufacturing executives expect business activity to increase over the next six months.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from ‐7.5 in July to 4.2 this month. This is the highest reading of the index since November 2007 (see chart above). The percentage of firms reporting increases in activity (27%) was slightly higher than the percentage reporting decreases (23%). Other broad indicators also suggested improvement. The current new orders index edged six points higher, from ‐2.2 to 4.2, also its highest reading since November 2007. The current shipments index increased 10 points, to a slightly positive reading.



August 30th 2009 bloomberg report.

Sales Up - TED Spread Down - New Market High

CNBC's Larry Kudlow looks at indicators of an economic recovery, including the TED spread. Larry breaks down the details of the recent positive economy sales report.

The TED spread is the difference between the risk-free three-month T-bill interest rate and three-month LIBOR (includes a credit risk premium), and is considered to be a good indicator of the overall amount of perceived credit risk in the economy.

A year ago on September 15, 2009 the TED Spread jumped by 65.5 basis points (from 134.855 bps to 200.3588 bps) as Lehman Brothers filed for bankruptcy and fears about credit risk soared. Two days later on September 17 as fears about credit and financial risk intensified, the TED Spread jumped by another 82.6 basis points (bps) to more than 300 bps, setting a new record (back to at least 1990) for the largest one-day increase in the TED spread (that record still stands), and setting a new record for the highest TED Spread to date.



At the height of the financial crisis about a month later, the TED Spread hit 456.485basis points on October 13, 2008, an all-time record. As the credit and financial markets have gradually healed, the TED Spread has fallen by more than 450 bps to the current level of about 15.75 bps, the lowest level in more than 5 years, since June 8, 2004 (see chart above). One more sign that the recession has ended.

No doubt these positive economic signs were responsible for the VIX index ( a measure of fear in the stock market) hitting a new low and the USA stock market hitting a new high on Wednesday.

Yes - There Is Economic Life

More signs of economic life seen.

This week in addition to the improving economic signs contained within the Federal Reserve Beige Book Report, two more measures of improving optimism were released. And Friday's news from FedEx and Cliffs Natural Resources was more proof of the existence of green shoots.

Now we often have to remind researchers that what consumers say and do can be two very different things. Still, in an economy driven 70% by consumer spending consumer and small business owner sentiment is important.

Consumer Sentiment Continues to Rise

1st - The Reuters/University of Michigan preliminary index of consumer sentiment increased to 70.2 this month from 65.7 in August. This increase exceeded expectations. The University of Michigan measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars and homes is part one of the survey. Part two - The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending also rose.

Small Business Owners Becoming Optimistic About Future

2nd -The National Federation of Independent Business, which surveys its members each month, said its index of business owner optimism rose 2.1 points to 88.6 in August, an increase that NFIB chief economist William Dunkelberg called "a big gain." The optimism, though, is about the future, as owners still have a dim view of current economic conditions. Dunkelberg noted that small businesses generally aren't planning big capital expenditures or to start hiring again. "First you have to feel better before you'll spend your money," Dunkelberg said

Sales Rose And Inventory Declined.

In a separate report, the Commerce Department said orders for durable goods — products that are meant to last a number of years — soared in July at the fastest pace in two years. Orders in the transportation sector had their biggest gain in nearly three years. No-doubt that was the result of cash-for-clunkers which is now over.

In yet another sign that future business should improve A Commerce Department report showed wholesalers’ inventories fell again in July, after a drop in June. Wholesale inventories have had the longest series of declines since records began in 1987. Given durable goods sales, have rose for three consecutive months, the belief is firms will need more workers to build inventories back up.

Friday's News from FedEx and Cliffs Resources showed two more positive signs

We closed the week with FedEx tacked on $4.66, or 6.4%, to 77.32, after the package delivery giant said its fiscal first-quarter earnings will exceed its previous expectations and projected a profit this quarter above analysts' estimates as the company benefits from international improvement.

And Cliffs Natural Resources rose $2.13, or 7.6%, to 30.23, after saying it expects its North American iron-ore and coal sales this year to be slightly better than it previously thought as customers increase steel production.

Beige Book Shows Green Shoots

One important report institutional investors and economists monitor is called the "Beige Book". Why is it called the Beige Book? If you guessed because it's a Beige colored printed report -you are correct. The U.S. Federal Reserve reported Wednesday in its latest Beige Book survey of the region’s business executives.

On Wednesday, the Fed's Beige book was released for July and August. It summarizes reports from the 12 Federal Reserve Districts and pointed to economic activity that continues to stabilize.

Compared to the summary from the Fed's last Beige Book report, 11 out of 12 regions asserted that economic activity had either stabilized or improved. Even in the 12th region -- St. Louis -- their read-out pointed to a pace of decline that was moderating.

Almost all regions remarked that among business leader contacts in their territories, the economic activity outlook is now cautiously positive.

The reports underscore what we've been hearing, that clunkermania boosted auto showroom traffic and subsequent new car sales in all regions. Several regions confirmed that the program has also resulted in increases or planned increases in automobile-related production. Beyond the auto industry, most regions reported general improvements in manufacturing production. Next month's auto sales report will likely drop off without the government incentive. But others are betting it will be better than last September.

Most territories also reported improvement in the residential real-estate markets. It has been estimated that the $8,000 first-time home buyer credit accounted for up to 35% of sales.

It also came as no surprise that with labor markets on the mend, 8 of 12 regions report upticks in demand for temporary workers - usually a leading indicator of a return to job growth.

The report is prepared at the Federal Reserve Bank of Atlanta and based on information collected before August 31, 2009. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

Formally known as the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” the Beige Book is published eight times a year

More Green Shoots & New Market Highs

For the fourth straight month the leading economic indicators are pointing up. Now two regional manufacturing surveys show manufacturing activity is rising. And July home sales surged for the second consecutive month. All this positive news pushed the market to new highs last Friday August 21st, preventing the much expect market correction, for now.

Five More Positive Economic Indicators Denied Perm-Bears Satisfaction.

Since the March 9th market bottom, we have been witness to the greatest American stock market advance since the 1930's. Those brave investors who dared jump into the eye of the hurricane or stayed the course are to be congradulated for having faith in the long-run. But this is no time to party-hardy or dump a ton of new money into a market that has soared 52% in just 165 days. This is a time of thanksgiving and reflection. Now is also the time to question how likely is this good news to continue without some bad news and market pull-backs.

1. The Conference Board said its index of leading economic indicators rose for a fourth straight month in July. The index, intended to forecast economic activity over the next three to six months, suggests the recession has bottomed and the economy will soon start growing again. Six of the 10 indicators that make up the index rose in July.

2. A survey of manufacturers in the mid-Atlantic region on Thursday showed that factory activity rose in August for the first time in nearly a year. The report by the Federal Reserve Bank in Philadelphia followed a similar survey reported Monday by the New York Fed that also found an increase in manufacturing activity after months of negative results. The rise in both surveys indicates manufacturing is growing even in areas without significant auto-related production, economists said. The auto industry has enjoyed a big boost from the government's Cash for Clunkers programs.

3. July had the fewest job losses in almost a year. The government said companies cut 247,000 jobs in July, a large amount but still the smallest loss since last year. Yes, this is one of those less worse is good news. One can see the inverse correlation of declining new unemployment claims which peaked in February and have been falling for five months. Bears point out the last two weeks have seen claims rise.

4. The official unemployment rate drop unexpectedly to 9.4% in July its first drop in 15 months. Yes, many private economists and the Federal Reserve still think rates could top 10 percent by next year. Yet, this was a positive surprise as an increase was expected. And as any Economist will tell you unemployment rates are a lagging indicator.

5. Home sales in the Midwest surged 8.5 percent in July, the second straight annual increase, as new home buyers snapped up properties to take advantage of a temporary federal tax credit. Nationally, home resales rose 5.6 percent in July, the first annual increase since November 2005. Affordability is driving sales -- the median sale price fell 15 percent to $178,400.

"Looks like the recession ended in June," Tim Quinlan, economic analyst for Wells Fargo Securities, wrote in a research note. The National Bureau of Economic Research, which officially declares the start and end of economic cycles, has in the past set an end-date to recessions after two to three straight months of gains in the leading indicators, Quinlan said.

Now For The Bad News

The Mortgage Bankers Association, said more than 13 percent of American homeowners with a mortgage are either behind on their loan payments or in foreclosure — a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime fixed-rate loans, up from one in five a year earlier.

Markets are always forward looking. And it's ditto for this market too. Yet, this doesn't mean the market has ESP to foresee the 2010 economy. No, it just means it expects to see an improved second half of 2009. Remember the 2001 brief recession? It was declared officially started in March and ended around November 2001. The market after a climatic September sell-off after 9/11 turned and climbed into March 2002. The Market then tumbled all year long reaching new lows in anticipation of a disappointing weak recovery.

One of the real big economic worries is the need to create new jobs (not just maintain jobs). Scott A. Heintzelman, CPA, CMA, CFE a Partner with McKonly & Asbury, LLP has dug deep into the Bureau of Labor Statistics report to uncover their measure of labor underutilization a.k.a. Real Unemployment. The Real Unemployment Rate is 16.8%.

Market Results: The Biggest Advance Since The 30's - Thank you, I'm leaving the party early.

This has been the strongest market advance since the 1930's. The perm-bears have missed the greatest six month advance in their lifetime. Still, it's hard to image another 10% advance without more than a 5% pull back. But it's possible. In August 1981 the market rose for 12 straight months with only a few 5% pull-backs.

I'm thankfull for the last 1,000 point gift driven by so many green shoots. But I'm cashing in most of my general market chips (S&P Index Funds) before the party ends and the market disappointments arrive. I'll be happy to jump back onto the bandwagon after a pull-back.