Half-Time Economic Update: Are You Smoking Green Shoots?

With half the year behind us and summer vacations beckoning, it's time to stop, take a breath and assess where we are in the economy and the markets. I would sum it up like this: less bad doesn't equal good, but it's better than total melt-down.
After a dismal first quarter, there has been movement away from the edge of disaster. Credit is improving, but still tight; employment is still terrible, but not as bad as it was in January; the housing market remains in the doldrums, though the pace of decline is easing up a tiny bit; global manufacturing figures suggest that we most likely have seen the worst in that sector; and the nation's banks are out of intensive care, but have taken up residence in the critical care unit.
This is not a rousing endorsement for an economic recovery, but the improving conditions over the past few months has quelled fears of "Great Depression II" and allowed markets to move back from the extreme valuations that often accompany panic and fear states.

Helping matters was the emotional pull of the ever-optimistic human being. Some time in March, it really felt like sophisticated investors and ordinary consumers alike wanted to stop feeling bad. Everyone was so burned out on bad news, that the mere mention of "green shoots" was like a drug to dull the pain.


As someone who has just been through a painful period where prescription narcotics helped take the edge off, let me remind you that without the drugs, the pain is still there. It may be less severe, but you know that it's there. You also know that the recovery will not be swift. It took a couple of decades for the excesses in the financial system to build to a peak--does anyone truly believe that we will be done in two (albeit painful) years?

Avoiding financial calamity is a good thing and yes, it does appear that the global economy is past the absolute worst point in the cycle, but a self-sustained recovery is not necessarily in the bag. In other words, be careful not to smoke those green shoots.


Images by Flickr User warrantedarrest, cc 2.0 and Flickr User TorbinH, cc 2.0