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A Bull Market Requires a Healthy Consumer Underneath

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Message James Stafford

A year ago this week the stock market hit its nefarious 666 level on the S&P 500. Since that historic day, we have enjoyed a 68% appreciation in equities from their depressionary low. Not only has the bounce caused a chorus of perma-bulls to claim the worst of the recession is behind us, but also to declare that the bull market is here to stay.

But the cacophonies from those pundits who are now categorizing the move off the lows as a long lasting trend are overlooking an important point; a viable and sustainable bull market can only exist if the underlying economy and especially the consumer also enjoys the same healthy condition.

One of the hallmarks of a vibrant economy is that it is boosted by a consumer who has access to credit, expanding employment opportunities and real (adjusted for inflation) income growth. None of those conditions currently exists.

Last week the Bureau of Economic Analysis (BEA) announced that Personal Income decreased 1.7% for all of 2009, whereas Real Disposable Income increased by a paltry .9%. The only way the BEA was able to come up with only a slightly positive read on real income for the entire year was to claim that Personal Current Taxes decreased by 23.1% and inflation posted just a .2% increase in 2009! That's correct; even though other inflation gauges like the CPI increased 2.6% last year, the BEA claimed inflation was just flat. But even if you assent to their corrupted read on inflation, the point is still abundantly clear that income growth for consumers was absent. What's more, the lack of income growth is continuing in 2010. The BEA announced a drop of .6% in Real Disposable Income for the month of January.

In addition, last Friday the Bureau of Labor Statistics (BLS) announced that the U.S. economy shed another 36k jobs in the month of February. That number added to the 8.4 million jobs lost since the recession began in December of 2007. Therefore; even with the help of 15k census workers being hired and 30 months after the Fed began reducing interest rates and 17 months after Congress passed the Emergency Economic Stabilization Act of 2008 which gave Treasury TARP authorization, the economy is still unable to produce any job growth.

But perhaps the most damaging blow to consumer's ability to spend is their access to credit. Let me point out that the need for consumers to has never been more acute and is exactly what is needed for long term growth.

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I have an interest in the financial markets, commodities and Geopolitics.
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