The progression of the economy has moved from a recession to a credit crisis to a financial panic back to a recession. The GDP numbers of last week encapsulate exactly where we're at: Q1 -6.4% and Q2 -1.0%. Due to the incredible sharp reduction in costs and inventories in Q1, earnings beat expectations by a historical amount and generated a massive up move in equities.
It is truly a case of falling so far that everything looks up from here.
With the critical 3mth Libor-OIS spreads returning to the pre-Lehman Brothers failure levels, stock market gurus are saying why can't the S&P return to it's pre-Lehman level of 1,200?
One reason may be today's (Friday's GDP had this) personal income and spending data. It provides a glimpse into the future that isn't nearly as promising. Prior to the summer of 2007, consumer spending was around 70 percent of the economy.