The Recovery- Three Steps Forward, One Step Back

When we speak of the recovery, we need to be clear about where we are pointing to. The healing of the credit markets is ongoing. Major financial institutions have successfully tapped the markets to the sum of $78 billion in new shares and bonds to satisfy the Federal Reserve and Treasury and replenish their respective balance sheets. Aside from some of the banks themselves, most agree the capital raise was necessary as the losses on mortgages and declining assets values will continue to haunt them for some time to come.

The equity markets continue to stubbornly hold the high ground. Investors, both individual and institutional, continue to bid up stocks and only become more aggressive buyers on any weakness. The extreme pessimism and fears of financial Armageddon have largely left the markets, leaving investors to focus on company earning power and valuations. Lean inventories and streamlined head counts earnings power could be turbo charged should the stimulus plan prove to be just that, stimulus not stimu-less.