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Common Sense Economics

Good morning everyone. I did not post anything yesterday. I was feeling sleepy and groggy, ugh- allergies! OK, who cares. Lol. Let's get this show on the road.

Today, I am expecting a slight rebound in the markets. The keyword is 'slight'. I believe that the recession is over but many Americans feel that it isn't, even though the current administration has done enough to avoid a worse scenario. I spoke with local real estate economist Todd McKissick who suggested in a series of articles that foreclosures, the health of the corporate credit markets and continuing rise in unemployment may dampen any kind of serious recovery.

Although true, the economy as a whole is on the mend. Albeit, it has been a mixed bag by many companies based on the health of the earnings being released this quarter- meaning, it could be worse.

Many firms have been able to protect their margins and grow because they have reduced their payrolls, put capital spending projects on hold, and reduced or consolidated product or service offerings to compete. On the other hand some firms are still in that repositioning process, such as Microsoft who reported a 17% decline in earnings for the fourth quarter and almost a 30% decline in operating income for the same period in the previous year due to the worldwide softness in the pc and server market and the delayed launch of their Window-7 operating system.

Many firms will continue to cut costs and excess inventory that was built up in the period between 2002 and 2006 until they feel that their businesses are not threatened anymore. As the cost-cutting continues businesses balance sheets will improve and earnings results will improve each succeeding quarter, providing the springboard needed for a strong economic recovery going forward. However, it will continue to be painful for many, with medium to small businesses taking the brunt of the pain. Therefore, a flight to quality and capital preservation are "par for the course" until there is a full economic recovery which in my opinion is still another 2 years and months away.

Follow my blog daily for ideas, strategies and lists of ETF funds, stocks and other investments that are going to perform well in this tough economic environment.

7/30/2009 10:50 AM

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