I don't have a recession starting this year (namely two consecutive quarters of negative GDP growth), because everyone and his brother is pushing on all the buttons to revive the economy. I fear they are pushing the wrong buttons, enough to fool the market for a day or two. Take that exclusion o dividends from taxation. It has no economic stimulus impact, furthermore, it will introduce once more investment for the wrong reason, induce savers in CD's and money market to go into risky stock with funds that are not destined for that risk. Create a bunch of funds that will do nothing but play the "Capture the dividend" game to get tax free income. Just another exercise in capital mis allocation. I thought my party had better economists, but some market guru (Charles Schwab, I presume) whispered in Bush' ear that this act will revive the market. Maybe for a short while (could already be done with), but the economy surely will not see a red penny from that. It so happens that the Fed's actions from last year are sufficient to avoid an outright recession, and maybe result in a soft landing. But I'll repeat, the problem with the economy are endemic, excess capacity, and now after last years "party", adding to that excess capacity in the hands of consumers (meaning long term durable goods like houses, cars, furnishing and appliances) need to be absorbed, and that, unfortunately is not the situation that great economic rebounds are made of (rebounds are made of pent up demand from consumers and businesses that have balance sheets healthy enough to demand new products). I don't want to sound too bearish, there are a lot of people working and getting very good pay, but there are now some 8 MM people seeking work and not finding it, that is a double whamo, they don't pay taxes and we must support them during their hard times (more deficits). A growing work force is an excellent growth engine for an economy, a contracting one, at a time when the work force has splurged and bought everything in sight, is not the best condition for a vibrant recovery.
That is getting too long and I even did not have a chance to discuss future competition between the government and business on funds, causing a slow but steady rise in the long term rates. The decline of the dollar is giving us some respite in international markets, but do they have the ability to buy much of our goods?
Zeev
