While it is good that >90% of folks surveyed agree we are in recession and not living in denial, it is bad that only 20% think things will be better in a year. That attitude affects behavior. A cautious consumer will keep the economy either in recession or teetering on the edge of it (remember GDP is 2/3 consumer spending).
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This also goes the administration’s budget projections for 2010. Remember they budgeted 3.5% GDP growth next year. It is increasingly becoming very apparent that the outlook is far too optimistic. This means the $1.7 Trillion deficit projected is just too low and ought to easily surpass $2 trillion. This is a stunning number.
It also means that the next budget will requires either or both of two things, sharp spending decreases or/and large tax increases. Large tax increases, while revenue killers long term will raise revenue in the short term and give the “we are reducing the deficit” rhetoric some truth (it will also stifle growth). Spending decreases will accomplish the same. Unfortunately, both are bad when the economy depends on their current levels.
Stocks? I think it means there is no rush to buy. The current run up is in anticipation of a 2nd half recovery. When that does not materialize, pop goes the rally. Will it test the low’s? I do not know, I hope not. I do think 7000 is a likely number we see again.
With that being said, a 1000 pt. sell-off will take most equities with it so rushing in to buy now is not necessary and you may end up kicking yourself.
A little patience here I think will be well rewarded….