Embrace the Horror!

Welcome to my nightmare
I think you're gonna like it
I think you're gonna feel...you belong
We sweat, laugh and scream here
cuz life is just a dream here
You know inside you feel right at home here
- Alice Cooper

With Halloween just around the corner, it is an excellent time to reflect on the horror the economy has faced, realizing good times will return though they may have a new definition.

The 14.2 trillion dollar U.S. economy has faced a great beast, stared it down, and is now building toward recovery. Though we certainly took our licks in the process (and yes there are more to come), it is now time to look forward realistically to a growth economy, building today for the opportunities to come tomorrow.

At times like these, expectations of both market and economic performance seem to split with seemingly radical views on either side. There are those who still expect the economy will grow quickly beginning as early as the first quarter 2010 as quickly emerging inflationary fears drive the Fed to ramp up interest rates in an urgent fashion.

There are those who feel we are headed for a "double-dip" recession, with economic activity falling briskly from here and a Fed left impotent as evidenced by its current empty bag of tricks.

It is now time for both of these camps to take a more realistic view and consider each other's projections. Just as political viewpoints can be polarizing at times, so can opinions on other topics, and economic activity is not immune.

Instead, consider this Thursday's GDP release expected to be 3.2 percent. Though much of this growth is a direct result of government spending - which by definition is temporary given the rest of the economy must "pay" for it at some point - most any growth today is quite welcome.

Additionally, it is clear this quarter's growth spurt is but a blip in the current trend of level, or perhaps only slightly positive, activity. But there are signs of future growth on the horizon.

Of course, a higher and rising stock market helps, but the recent pickup in M&A and IPO activity bode very well for the lagging investment activity seen over the past couple years. Getting capital back to work is one major step toward an efficient, functioning and growing economy.

The other, of course, is consumer activity. Though we remain some $500 billion off pace, it is important the consumer can grow from here or wherever we bottom. Sustainable growth will surely begin once the housing markets settle and the mortgage markets return to a functioning level (think late 2010/early 2011 as outlined in previous articles).

So, we as investors, consumers and entrepreneurs must lower our expectations in reaction to the "economic reset" button that was pushed by the markets in 2008. Today, perhaps earning a 1�2 percent return on low-risk fixed income bets is reasonable. Perhaps a long-term gain of just 5 - 7 percent per annum on stock market returns is justifiable. And perhaps a 36-inch flat screen will do where a 45-incher was desired pre-crises.

As for me, our family is handing out full-size candy bars to trick-or-treaters this year for the first time.

Let's get this economy going!

Key Developments
September's producer price index release was significantly lower than expected at -0.6 percent. Over the last year, prices dropped 4.8 percent, primarily driven by volatile food and energy price movements as the core measure actually rose 1.8 percent.

Housing starts remain at depressed levels as expected, but existing home sales jumped 9.4 percent to an annual pace of 5.57 million. Though well off the lows around 4.5 million, the government's temporary $8,000 homebuyer tax credit is surely driving some of these additional purchases.