Don't Fall for Lies About the Economy

Despite What You May Have Heard, the Economy Isn't Nearly As Bad As We're Being Told

April 1, 2009

Here's a little secret that's been floating around Wall Street, but no one is afraid to say out loud: The economy is doing better than most people realize.

Don't get me wrong. I'm not saying the economy is zooming along. To be sure, there are still major problems. But we're far from the disaster that so many in the media have predicted. I should add that for many folks in the newspaper business, it is doom and gloom. For his part, President Obama recently said, "we are beginning to see signs of progress."

The G20 meeting is about to start in London and it's understandable that each country's leader wants to say how bad things are. It will also give some leaders an opportunity to practice their favorite hobby–bash America. So naturally, no one wants to show up and say everything's fine and dandy.

In the U.S., the economic numbers are still pretty grim. For example, last week's GDP report was revised downward to -6.3%. But bear in mind that that's for the fourth quarter of 2008. We're now in the second quarter of 2009. I'm sure the GDP numbers for the first quarter will be fairly poor as well, but the second-quarter numbers could be decent. The point is that most of these economic reports are backward looking. Only now are we learning how badly things were six months ago. We won't truly know how the economy is doing at the moment until the summer.

Inspecting the Evidence

Here are a few examples of promising economic news items that have been lost in the noise.

Last week, the Mortgage Bankers Association said that applications to refinance existing mortgages rose by 41.5%. This is very good because refinancing acts like a tax cut since it puts more money in consumers' pockets. Mortgage rates are currently at the lowest level in 50 years. This may not help housing as a whole, but it helps consumers on the front lines of the economy.

New home sales rose 4.7% in February after making a new all-time low in January. Housing still has a long way to go to fully recover since the current inventory is huge. But the signs are pointing in the right direction.

The Commerce Department recently announced that orders for durable goods rose 3.4% in February. An unexpected rise in orders for big-ticket items marked the first increase in durable goods after six straight monthly drops, a clear indication that domestic demand may have bottomed. Economists were expecting a 1.2% decline in durable goods, so the 3.4% rise was great to see.

On Friday, we're going to get the employment report for March and I expect to see more bad numbers. The preliminary report from ADP was very bleak. However, employment tends to be a lagging indicator. Companies start hiring only after business has picked up. Still, new jobless claims in the U.S. rose by only 8,000 to 652,000. Last week's claims were revised down, which caused the four-week moving average to dip.

The numbers on unemployment have been very spotty so we need at least a dozen weeks of declines to identify any concrete shift in labor trends, but things are looking up. I still think that we may see a peak of around 700K, but initial claims are usually one of the very first numbers to turn around and signal the end of a recession. The fact that these numbers are stabilizing is very encouraging.

We also can't forget that the stock market has rebounded very strongly. Since March 9, the S&P 500 has added 18% which is the best 16-day run in over 25 years. The index just wrapped up its best month since October 2002.

That's why investors need to be in the market right now and not wait for these bargain prices to pass them buy. In this kind of environment, if you wait, it will be too late. Some of my favorite stocks for the recovery include AZZ Inc. (AZZ), Beacon Roofing Supply (BECN) and MasTec (MTZ).

In these volatile times, your best defense is a strong offense of fundamentally superior stocks. Make the wrong choices and your already battered portfolio could suffer even more. Make the right moves though, and you can ensure your portfolio posts profits for the entire year. The actions you take now could make or break your performance this year. Today accept your copy of the 2009 Investing Guide, absolutely FREE, so that you can get a look at the opportunities and the dangers that investors will confront in 2009.