You can't spell recession without N-O-I-S-E

Whether we end up this year in a recession or not is little more than a coin flip at this point. Major investment banks are predicting a 50/50 chance of a recession before year end....thanks guys for that detailed analysis....here are some thoughts I have on the subject. Draw your own conclusions as I'm sticking to the 'it may or may not' course....

- Unemployment is up, but only to 5% which is a historically healthy level. This can be interpreted as companies avoiding hiring a surplus of employees and trying to operate as lean as possible on the expense side.

- High oil prices are pushing non-core inflation up, but only to 4%. Core inflation has remained contained at 2.5%.

- Factory out put is down, or is it? 5.2% increase in durable goods orders reported today. This is a huge boost for a segment of the economy that was being seen as a major lead in to a recession.

- The dollar continues to be weak, there is no doubt that our dollar continues to be depressed against a basket of foreign currencies, but if you are an exporter this is good news. US exports are rising sharply, and business inventories remain reasonable.

- Housing. There is no doubt that there is a significant recession in housing markets. This is a correction related to over supply and excess. Much of the correction is believed to be contained as it has been a two year fall in some of the heaviest hit areas.

- M&A activity is slowing. While it is certain that mega wall street deals are at a slowed pace, this is only half the story. Non-financial companies are reported to have re-purchased $600b worth of their own shares in the past 4 quarters. This means companies are more confident in their own abilities to generate shareholder value internally than they are in their ability to risk making a mistake on costly acquisitions and conversions. There is no reason to believe that this trend won’t continue as companies are sitting on large cash reserves.

- Credit crunch! Financial stocks suffered in 2007 as massive write offs plagued many banks balance sheets. The good news is that these massive write offs have happened. While financials suffered dramatically, the aid of foreign investment into these companies allowed the markets as a whole to weather this storm. Foreign investment dollars can be perceived as a sign of global confidence in the US markets.

- Stimulus package is a political move and nothing else. It’s next to impossible to evaluate the impact and timing of any type of political reform or stimulus. What is possible is to anticipate what some potential effects of the reform may have. No matter what is decided, and who (or how many) are to receive the stimulus, it will be an expansion of the money supply. This is a precursor to increased spending and temporary expansion in the economy.