“The Great Recession”, as former Fed Chairman Paul Volcker labels it, continues to put merciless pressure on the employment situation in the U.S. and, in turn, the prospects for lasting economic prosperity. In our opinion, one of the important things to recognize about our current economic and social predicament is that the migration of high-paying jobs, whether through elimination or overseas outsourcing has been going on for nearly two decades. The advent of widely used technology has been extremely useful to business for diminishing the workload. The issue is not whether technology has been good or bad for society but how the “savings” from the use of technology and the elimination of labor is redistributed throughout the society. Unfortunately, the benefits from the advancements of society have largely accumulated disproportionally to the few. One of the seemingly populous attractions to President Obama is his apparent attempt at wealth redistribution and fairness.

From the industrial age where many were employed at livable income levels, the service-sector age was blindly ushered in and many were forced into self-employment with unstable security and income. Throughout this transitional period the cost of living became increasingly burdensome for the middle class. To compensate for the economic squeeze, easy availability of credit (debt) was offered and largely offset the realities of rising costs. Most enjoyed the comforts of a rising standard-of-living, albeit, unknowingly at the cost of a lower quality of life. Bubbles, in any economic form – from tech stocks to housing - give one the temporary belief in opportunism and entrepreneurism. Of course, with the passage of time and the accelerated participation of many, bubbles burst. Sadly, instead of accepting reality and what it offers, many, including the political herd, are attempting and hoping and even praying to re-inflate the current debt-laden bubble. Being of a self-serving and shortsighted nature, the Federal Reserve, Treasury, and our elected officials are focused on maintaining price levels however unrealistic. Apparently, the powers that be believe in free markets only when they serve them well.

More specifically, the economy is still in contraction and is likely to putter around at lower levels for some time to come. Stagflation, a period of low growth and higher inflation, could easily become an unwanted reality for the country. Unemployment, at 8.5% in March, is worsening and could reach into the double digits in the period ahead before stabilizing at a higher norm. Interest rates are also likely to trend higher over the next twelve months, as borrowers require necessary compensation for depreciating dollar holdings. Our guess is that economic recovery will be slow in coming and take longer to regain sustainable footing than in previous recessions.

The stock market may have witnessed the majority of its downturn with share prices significantly lower than year earlier levels. Corporations have continued to lower costs, clear inventories, decrease debt and accumulate cash in a defensive posture. Stock prices in general appear fairly valued given much lower earnings and projections. Still, we do not foresee another “bull market” in stock prices anytime soon. At the current time, we believe that the market is witnessing what is commonly referred to as a bear-market rally. Taking advantage of this run in stock prices is an opportunity for the reallocation of assets where applicable. Our recommendation is to approach the market in a slow and steady way and avoid trying to pick the bottom. Investors should always keep in mind that although investor sentiment can vacillate wildly with the market, the stock market is led by the underlying economy and not the other way around.