Thoughts on the economy

I don't believe that the downturn is over. Read this quote from 1930, during the rally which was a prelude to the next leg down:

“Cheap money is a stimulant, also an intoxicant. If the dose is large enough, a substantial temporary effect can be brought about, but headaches follow. If the matter really were that simple, everybody could be an economist, and only the perversity of central banks would keep us from endless prosperity. Merchants and manufacturers will not be induced to increase borrowings, since interest on money borrowed is only one small factor in total costs. But if merchants and manufacturers will not use cheap money, speculators will”. Benjamin Anderson, Chief Economist of Chase National Bank, New York Times, April 1930

I believe that housing is one market where a lot of that cheap money went the first time, and the bursting of that bubble was the downturn of 2008. I don't know that all the nonproductive speculation went into housing, though. There will be more to come. IMO The recent stock market recovery is fueled by money looking for a home rather than on the strengths of the business activity of the underlying companies, which makes it a bubble unless the underlying business picks up to a point to warrant the stock values. Time will tell, but I'm not betting on a continued stock resurgence.

Ty Andros at Financial Sense University says the same thing, much more eloquently and with actual documentation. I swiped the quote from his article.