by Joe Del Casino

Created on: April 13, 2010   Last Updated: April 15, 2010

The Dow closed over 11,000 yesterday for the first time in a couple of years. However, the range of opinion on its future path remains as wide as ever. Optimistic investment pundits pointing to daily improvements in some economic metrics see opportunity for gains in the short-to-medium term, but hasten to caution that those gains may be short lived as significant market headwinds arriving as early as this fall could derail the market's climb for many years to come. Some are hopeful that those headwinds will mitigate if republicans regain control of congress next November and temper the Obama administration’s anti-growth tax-and-spend economic agenda.

Pessimists acknowledge those daily improvements but believe that the market’s dramatic recovery since March 2009 is primarily the result of temporary government and Federal Reserve intervention that has stabilized the economy and the markets. They believe that the private economy is not yet self-sustaining and cite the persistence of many of the circumstances that caused the great crash last year as gnawing reminders that it is premature to claim victory over our economic woes. Furthermore, they believe the dramatic expansion of debt and deficits among the world’s major governments is a substantial threat to full global economic recovery and long term prosperity. Pessimists concede that congressional gridlock next year could stop the rampant government spending, but hasten to point out that gridlock won’t reduce the already robust government debt and deficit that inevitably higher interest rates will further exacerbate.

The optimists know that bull stock markets begin with seemingly unimportant short term economic improvements, but the pessimists know that market moves also anticipate the long term health of the economy. And, everyone knows that the US economy relies heavily on a US consumer that continues to weaken under the pressure of chronic high unemployment, growing credit restrictions, negative home equity, and bleak prospects for higher taxes, not to mention the negative outlook for both public (social security/Medicare) and private pension systems. Imagine what a spike in oil prices would do to consumer spending, as the situation between Israel and Iran approaches a climax later this year.

Given our economic predicament, it is rather amazing that the market has recovered so far so fast, especially because optimists and pessimists

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