The UK economy is off to the races. Brace yourself for a rocky ride.
"U.K. Economy Shrank Less Than Previously Estimated" screamed the headline on Bloomberg.
What a relief. The Office for National Statistics said gross domestic product (GDP) fell 0.3% in Q3, compared with a prior measurement of a 0.4% drop. Consumer spending stopped falling and the service industries slump eased. The end is surely nigh for the longest recession on record.
There could be even better news ahead…
"Over the coming quarters the economy will accelerate pretty sharply," said Nick Kounis, a former UK Treasury official, on Bloomberg. "In third quarter the UK was one of the sick men of Europe but it's going to step up a few gears and will be one of the stronger performers in Europe next year."
Party Time
Woo hoo! It's off to the races we go. Borrow as much money as you can and pile it into shares, property, gold, oil and any other commodity that takes your fancy, Aussie and Kiwi dollars, and sit back and enjoy the ride.
But hang on a minute…isn't that the sort of behaviour that got us into this mess in the first place?
Yes, well, sort of. Except this time it's different. Maybe. More on that a little further down, but first, more about this economic recovery.
Bank of England policy maker Andrew Sentance recently said "We are hopefully now moving from the role of fire-fighters in the recession to a more familiar role -- steering the economy through an upswing underpinned by low inflation."
It surely doesn't get any better than this… strong growth, low inflation and low interest rates. The Goldilocks economy is back.
Heaven For Stock Market Investors
With the FTSE 100 up over 50% since its March low, and up 21% in 2009 to date, for stock market investors, this is heaven.
That is, unless you sold out completely during the March Meltdown, in which case, you're probably not reading this. Or unless you're still sitting on the sidelines, waiting for the next market crash, in which case, by about now you'll be getting really bitter and twisted, and even more bearish.
If you've managed to keep your job over the past couple of years, it's almost as if the recession never happened. In fact, you could even be far better off now than you were before the stock market started tanking in mid 2007.
Your mortgage repayments will be significantly lower. If you'd invested more money into the stock market at its low points, you could have made a small fortune, especially if you bought shares in the huge winners like Barclays (LSE: BARC), Fresnillo (LSE: FRES), Johnson Press (LSE: JPR) and Quintain Estates (LSE: QED).
Happy Days
Will these happy days last? Maybe.
Over in the US, the number of Americans filing claims for unemployment benefits slid last week to 466,000, the fewest since September 2008.
That's bad news for those 466,000 people. But it's good news for the stock market, because the unemployment numbers are getting less worse. "Jobless claims numbers were spectacular, way better than anybody expected," said Eric Green at Penn Capital Management. "This is very, very supportive of an economic recovery."
The stock market shows no sympathy for the jobless. What about those 466,000 poor people? It doesn't care about them. It also shows little signs of letting up on this rally. "The path of least resistance for the market continues to be up," said James Dunigan at PNC Financial Services Group on Bloomberg.
The Party Poopers
Of course, there is always the odd party pooper, such as Bank of England Governor Mervyn King who recently said "You should expect pretty buoyant growth rates in the short run" because the slump has been so deep, but tempered those comments by saying it's actually not a particularly strong recovery, and the economy continues to face "profound challenges".
If you are not staring at rising share prices on a computer screen, you won't have to look far to see what Mervyn King is talking about.
Recruitment company Harvey Nash (LSE: HVN) yesterday said "Although we continue to see increased demand for our IT outsourcing services, it has now become clear that positive sentiment is not yet resulting in increased demand for permanent recruitment… we expect that this will materially impact fourth quarter trading." As employers start hiring again, recruitment companies are supposed to be the first out of recession. Oops.
Cake and bread maker Finsbury Food (LSE: FIF) said yesterday "Consumer behaviour is still being affected by the recession and premium range sales have been impacted in the short term. The economic environment remains challenging…" It seems birthday cakes have become yet another victim of the recession. Double oops.
Enjoy It Whilst It Lasts
This time is not different. Speculation in any asset class, especially using borrowed money, will always end in tears. In order to profit, you are banking on someone else paying you more for your asset, and you are banking on them doing that for evermore.
Today may be your lucky day. As for tomorrow… who really knows?
More on the economy and the markets:
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article.
