Portfolio strategy update

The Bad News Bears

David Gottstein

Editor’s Note: The following column was compiled in early April. David Gottstein is with Dynamic Research Group in Anchorage

Is it possible to talk ourselves into a recession? The economy is certainly faced with a wide variety of excesses that need to be worked through.

Expectations, inventories, capacity levels, consumer debt levels, stock valuations, all will have to come into balance before the underpinnings of this bear market will be replaced with a foundation for sustained growth.

In the meantime, gloom and doomers, which includes an administration looking for ammunition to help sell its tax plan, definitely have momentum in their favor.

With an economy teetering on the brink of negative growth, all this talk of economic slowdown in part may become a self-fulfilling prophecy. It very well could happen.

Fortunately, the consumer is still the underlying driving force in this economy. Employment levels are still at very healthy levels. Consumer confidence bottomed out last month, and is heading slightly upward.

Hopefully, this is not an aberration. For the most part, so far we are faced with the prospect of a corporate profits recession, along with a significant slowdown in capital spending.

Not that the economy isn’t most likely postured for growth, but it is much less growth than corporate planning departments pictured a year ago.

Therefore, spending and capacity growth have outstripped demand, necessitating this capital spending slowdown until demand catches up. The big question is how long will it take and will we have another leg down before we head up?

We think the economy will continue to grow over the next few years, but that various excesses will need to be digested along the way.

The good news is that the market may indeed rebound 10percent or more for the remainder of the year.

The bad news is that will just about get us even for the year.