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Double Dip?
New York: August 17, 2009
By John Stephenson

The stock market has posted some pretty impressive gains lately, with the S&P500 Stock Index rallying more than 50 per cent since its March low. Investors are positively giddy as they look through a quagmire of economic statistics to the better days that surely lie ahead. In France and Germany , the local economists have suddenly turned bullish on the economy, declaring the recession over and done with. With improving new home sales in the U.S. and renewed investor confidence in America , the much ballyhooed global recession must surely be over.

Perhaps! But before you transfer your hard earned money into your investment account to buy all things American, you might want to consider the type of recovery that we are experiencing. Bargain hunters have been rejoicing lately, as the stock market has soared, but much of that optimism may be misplaced.

Much of the newfound optimism in the stock market has been centered on the commodity sector and the big Wall Street banks that were responsible for taking us toward economic Armageddon last fall. While China may continue to consume commodities at a voracious clip, I wouldn't bet my last dollar on a resurgent U.S. economy just yet.

While the size of the U.S. stimulus package has been massive, a mere 12 percent of it has been allocated toward much-needed infrastructure projects. Most of the U.S. stimulus so far has been sopped up by the Wall Street, rather than Main Street . But in spite of the massive amounts of stimulus, Citigroup continues to be a basket case, regional banking is a mess, and there isn't a stimulus dollar to be found if you are a financial institution that is actually lending to small and medium-sized businesses in America .

The auto industry is on life support in the U.S. , only being helped-out by cash for clunkers and a massive government bailout of GM and Chrysler. Sure, the personal savings rate has shot higher in recent months, but the increase in personal savings isn't going toward boosting investments in U.S. 401k plans, it's going toward paying down a mountain of debt before it comes crashing down on the hapless American consumer.

Banks, credit card and mortgage companies are taking a cautious approach to lending—an approach that will keep the U.S. consumer on the sidelines for some time to come. While an eventual recovery in stock and real estate prices is a big positive for Americans, a lack of jobs is decidedly negative.

While France and Germany may be trumpeting in better times in the years to come, Britain , Ireland and most of Eastern Europe will be in bailout mode for some time. France and Germany have turned out to be the European exceptions to the massive problems of hyper-aggressive residential real estate lending that plagued much of the western world. The European Union will continue to sputter economically, even with its two biggest economies coming solidly out of recession.

But while the Shanghai Index may be falling now, it won't be down for long. China has a budget surplus, healthy banks and a huge public sector savings to draw on once the global economic recovery begins in earnest.

While the economies of the West may be struggling, China and the other Asian nations are experiencing strong growth. It is this strong growth that is likely to benefit Canada and its resource-oriented companies in the months and years ahead.

The global economic recovery is neither broad based, nor robust. Economic growth will move in fits and starts and when we do see strength, it is increasingly likely to be coming from Asia and Canada 's resource sector. Asia is rising, and so too is Canada . That's good news if you happen to invest within Canada , but not such good news if you are an investor in U.S. stocks.

StephensonFiles is a division of Stephenson & Company Inc. an investment research and asset management firm which publishes research reports and commentary from time to time on securities and trends in the marketplace. The opinions and information contained herein are based upon sources which we believe to be reliable, but Stephenson & Company makes no representation as to their timeliness, accuracy or completeness. Mr. Stephenson writes a regular commentary on the markets and individual securities and the opinions expressed in this commentary are his own. This report is not an offer to sell or a solicitation of an offer to buy any security. Nothing in this article constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur profits and losses. We, our affiliates, and any officer, director or stockholder or any member of their families may have a position in and may from time to time purchase or sell any securities discussed in our articles. At the time of writing this article, Mr. Stephenson may or may not have had an investment position in the securities mentioned in this article
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