Be cautious!

Granted, financial markets have enjoyed a healthy rebound. Unfortunately this improvement may be only temporary. The problems facing US economy remain daunting... The unemployment rate, now at 9.5%, is still rising and may soon break double-digits. Next, the government’s debt binge due to unprecedented stimulus carry severe unintended consequences for the economy that could take years to surface. While the housing market may have seemingly improved, mortgage defaults and both consumer and business bankruptcies are still rising. So far, the world economy seemed to be less fearful now and that has helped to avert a financial meltdown of sorts. Plus good news all around from the BRIC nations that they are doing well... The current bull run of stocks seemed to run by sentiments. And rallies will abound.. from now to probably next year. When uncertainties present itself as the order of the day, sentiment-led rally at any good announcement is expected. But when the fundamentals cannot be sustained any longer, things will start giving way.

The ultimate test is whether this production-led recovery can turn into sustainable growth in the economy moving into 2010 ... and beyond. And the key to sustainable recovery is still the U.S. consumer ... accounting for about 70% of the economy’s total output.
What we know about the consumer is that we are collectively in much worse shape now than after the relatively mild 2001 recession. The loss in household net worth this time around has been much more severe.