There is more positive news recently; can that hold the Dow over 11,000? by Ken Mahoney

Fortune magazine showcased a headline on Friday that read, “Who can magically fix the economy?” A picture of a magician pulling a skunk out of Uncle Sam’s hat was comically pictured below. The article went on to read: “There is nothing that the U.S. government or the Federal Reserve or tax cutters can do to make our economic pain vanish overnight. There are no all-powerful, all-knowing superheroes or super villains who can rescue or tank the economy all by themselves.”

Do you agree with the quote above? We do. The simple truth is, no one has a magic wand. Some politicians peacock as if they do. Some analysts would have you think they do. But as a nation, we’ve suffered a huge financial setback. Home values – investment accounts – jobs – all have taken a big hit. It took us a long time to get into this mess, and it will take us a long time to come out of it. Just because the “great recession” technically ended in June of 2009 , doesn’t mean we’ve healed. Despite the best efforts of the Fed, Congress, President Obama, and the famous talking heads, the recovery will take time.

So what’s the good news? We’re headed in the right direction and Americans seem to be sensing that. For the third straight month, retail sales are on the rise nationwide. Shoppers spent more than $367 billion at retailers in September, which reflects a 7.4% year-over-year increase. Because personal consumption expenditures comprise 70% of national output, these healthy percentage gains create a solid base for U.S. Gross Domestic Product (GDP). The level of total U.S. retail sales has now recovered two-thirds of its recessionary peak-to-trough decline from late 2007 through the end of 2008.

In other positive news, since June, the private sector has added an average of 85,000jobs a month. By contrast, the economy lost 8 million jobs in 2008 and 2009.
Speaking on Friday, Federal Reserve Chairman Ben Bernanke said banks are slowly becoming more proactive in seeking out credit-worthy borrowers, and added that he expects a pickup of economic growth next year due to a "somewhat faster pace" of household spending. Tempering his optimism, he did express that economic growth would continue to be "relatively modest" due to persistent high unemployment and dampened consumer demand.

One of Bernanke’s comments is particularly noteworthy in the context of this discussion. "Sustained expansion must ultimately be grown by private demand," he said. So regarding the “magic wand” we mentioned earlier, if anyone has it, it looks like it is the American Public. Hire people – lend money – spend money. Take these actions, and the wheels of capitalism will turn.

ECONOMIC CALENDAR:

Monday – Industrial Production
Tuesday – Housing Starts
Thursday – Jobless Claims, Leading Indicators, Philadelphia Fed Survey
Friday – G20 finance ministers and central bank governors meet in Seoul, South Korea

Data as of 10/15/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 0.95 5.48 7.26 -0.17 -1.44
Dow 0.51 6.09 9.94 1.51 0.85
NASDAQ 2.78 8.80 13.6 3.91 -2.56
MSCI EAFE 1.16 3.19 1.80 0.72 0.98
10-year Treasury Note (Yield Only) 2.38 NA 3.47 4.49 5.72

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.

HEADLINES:

President Barack Obama will press Congress to approve $250 stimulus payments to seniors, veterans and the disabled, the White House said Friday amid persistent worries about the US economic recovery. The Social Security Administration earlier announced it would not be making cost of living adjustments to pension payments to seniors for the second year running.

Countrywide's notorious ex-CEO Angelo Mozilo settled with the Securities and Exchange Commission over a civil fraud and insider trading case on Friday. Mozilo agreed to repay $45 million of profit made and another $22.5 million in civil penalties, the SEC said.

U.S. retail sales rose for a third consecutive month in September, posting a stronger-than-expected increase that should fend off fears of a double-dip recession but doesn't signal a strong recovery.

U.S. President Barack Obama on Saturday said he wants to strengthen the labor market by closing tax loopholes that would encourage companies to send jobs overseas. Mr. Obama said he's aiming to replace the tax loopholes with new policies that would allow companies to write off the cost of new equipment, provide tax breaks for clean-energy manufacturing and make the research and experimentation tax credit permanent.
The U.S. government debt is expected to increase by 32% over the next five years if U.S. economic growth stays as slow as it is now, according to the International Monetary Fund.