Paper Economy: Do You Feel Lucky?

Wednesday, February 28, 2007

Do You Feel Lucky?

To say that today is a critical day on Wall Street, and for the whole US economy for that matter, would be a gross understatement.

Today is one of the most critical trading days in decades. Will steady hands prevail or shirk back in order to avoid a falling knife?

Will all the unfettered bullish optimism seen in recent months finally break in the face of some reasonable skepticism about our economy’s outlook?

I guess we will just have to wait until 9:30 AM EST to find out for sure.

But was Tuesday’s sell off really a reaction to an unexpected dip in China's markets or is there a bigger issue?

Could we be experiencing a time in which bullish optimism runs white hot while actual confidence is, in fact, very low?

After all, there have been many recent signals indicating that our economy is not only slowing but may have grown on some fairly shaky ground.

The final Q3 2006 GDP came in well under the expectations, weighed down by a historic decline to residential investment.

The nation's housing market has been in recession for a full year (in some areas even longer) and has shown unprecedented and widespread declines to both home sales and prices, even in the face of unusually low interest rates and a solid job market.

Durable goods orders have been dropping off for several months, further indicating that consumers may be pulling back a bit as a result of loss of real and perceived housing wealth.

The sub-prime melt-down (soon to be the prime-meltdown) is well underway, wreaking havoc across lending institutions of all shapes and sizes providing some substantial evidence that the easy lending heyday of the past will end with a final, sloppy hangover.

The dollar is weak; the yield curve inverted; savings rate negative; our lifestyle is as interest rate sensitive as it has ever been in history.

To top it all off, Greenspan has mentioned the “R” word. Egad!

Tomorrow will no doubt make for great dramatic effect on CNBC and Wall Street as both the New Home Sales report and the second installment of the Q4 2006 GDP report are released.

Only time will tell if we are at a turning-point but given the circumstances, you've got to ask yourself one question: “Do I feel lucky?”

Well, do you, punk?