Is this the Bottom?

December 15, 2010

We have always said that no one will know when the bottom is until it is at least 3 to 6 months after the fact.  With the amount of dips and rises that we have seen lately, it can only leave you feeling like you just got off of the worlds best roller coaster.  The only thing the average person can do is just hang on and try not to puke.  Because just like on a roller coaster, most of the time that puke is going to hit you right in the face. 

This week Congress is fighting over extending the tax cuts.  Most people agree that a compromise will be reached here very soon.  Republicans feel they have the upper hand and Democrats understand that if they don’t reach a deal, then they will be wearing the blame for a long time.  This kind of situation forces the elected to get down to business and get the job done for the American people.  This is what we need even though any compromise won’t be perfect and it won’t appease everyone.  Its just too bad that things have to get so bad before they put their own ambitions aside and remember who they are working for.

Well, this week could be the turning point for our economy.  It is understood that adding almost $900 Billion more to the deficit is continuing to dig the grave, but the confidence that this should bring to the American people should be priceless.  I personally feel that the two year extension is only adding another bandage without addressing the real problem, but it will help.  If Congress really wanted to make a difference, then they would attach strings to the tax breaks.  For example, giving tax breaks to higher income business who create jobs would be an incentive’ instead of breaking taxes for everyone without any performance.  The problem with the TARP program back in 2008 was that they just bailed the banks out without any strings.  They did not keep them accountable.  And they continue to make the same mistakes.

I do see this tax compromise a very possible turning point to our economy.  Businesses have done well the last year.  There is an estimated $2 Trillion ready to be invested in jobs, company growth, etc.  The item that we need to bring it all together is going to be CONFIDENCE.  Once that is established, then look to see our economy recover in a stable way.  It will be slow to begin with, but it will start recovering.  The only problem is that people need to plan for the future of higher taxes in every category.  The rich are not the only ones that are going to bail us out.  Everyone will be effected.  The damage has already been done.

The housing market will recover slowly after the economy recovers.  Job growth is still our largest adversary to the housing market.  The estimated amount of foreclosures in the next two years, as we have pointed out numerous times, needs to be hedged by job growth.  People need to make enough money to keep their homes as well as their spending habits.  This era of confidence just may be the start of this recovery.