You guys with a deeper/broader understanding of economics can help me out on this, but I'm going to spin out a thought here and let you guys steer me straight.

We've gone through this horrendous economic upheaval in the last year or so, and it was no small amount of time in the making - subprime loans, overvalued real estate, overbuilt homes, secondary investment products, the whole schmear. Now, it seems the market is bouncing back some, and people are getting optimistic about a recovery.

Am I out of my mind to think that we're a long way from out of the woods?

First, I recall reading an article that said the "second wave" of subprime mortgages wouldn't hit the economy for a couple of years, when a slew of homeowners would get hit with a one-time adjustment in their notes that, for many, was going to be a huge hit - and many of them would not be able to refinance to avoid it. That's obviously a gross oversimplification of a much broader, more detailed article, but that was the gist of it - another "wave" of bad real estate lending hasn't really hit yet.

Second, is not the "recovery" in the stock market at least somewhat illusory? That is, we have a great many funds managers in the world that make their own living based on their ability to get people in or out of various marget sectors en masse for sometimes less than noble reasons - not the least of which is to shore up their own long-term or short-term positions in things. The result is that if these fund managers take turns telling us the market is getting better, there's a significant number of them that may be doing so for their own purposes - not because the fundamentals of the market have truly improved. It seems to me that there's room for another unpleasant jerk downward in stock prices in the short term - maybe not as bad as last fall, but not pleasant if you're heavily invested.

Third, since we've become such a services-oriented economy, isn't it much harder to "see" a recovery than in the past, when tangible increases in the manfuacturing sector (particularly housing) were pretty reliable indicators of economic health? Those, plus things like information on the nation's money supply, how many dollars are chasing how many goods - all to say nothing of the ultimate effect the astonishing amount of borrowing we're doing is going to have on our national debt. I can't help but think we're - at some point - going to see an inflationary cycle hit, and hit pretty darned hard. And if the Chinese decide, for whatever reason, to stop buying our debt, then what do we do?

Like I said, I'm not an economics or finance expert, just a layperson who tries to read the proverbial tea leaves, and right now things seem a great deal more "unsettled" to me than some would want us to believe.

Am I nuts?

LOL actually SDave you're not.
BUT keep in mind "subprime loans, overvalued real estate, overbuilt homes, secondary investment products" and such is not the 1st time..once happen around Jacksons term, then I think Grants', & Garfield's time THEN shortly after WW1, then just before the CRASH of 29, and some lesser extant in the 55, EACH and EVERY time the industry promise they will fix it.
This time around its like we all forgot the previous times and we got "creative or greedy"
Most of your observations is if not spot on its darn near being so.
You can purchase the Books for Dummies titles... I do. .lol

As long as greed is around, bubbles will form and always burst.

When one of my brothers moved back to Wisconsin in 05, he doubled his money on his house in Cali in 3 years! The speculation in the housing market was insane and prices went thru the roof. Now the average Joes need to fix the mess greed created.

You guys with a deeper/broader understanding of economics can help me out on this, but I'm going to spin out a thought here and let you guys steer me straight.

We've gone through this horrendous economic upheaval in the last year or so, and it was no small amount of time in the making - subprime loans, overvalued real estate, overbuilt homes, secondary investment products, the whole schmear. Now, it seems the market is bouncing back some, and people are getting optimistic about a recovery.

Am I out of my mind to think that we're a long way from out of the woods?

First, I recall reading an article that said the "second wave" of subprime mortgages wouldn't hit the economy for a couple of years, when a slew of homeowners would get hit with a one-time adjustment in their notes that, for many, was going to be a huge hit - and many of them would not be able to refinance to avoid it. That's obviously a gross oversimplification of a much broader, more detailed article, but that was the gist of it - another "wave" of bad real estate lending hasn't really hit yet.

Second, is not the "recovery" in the stock market at least somewhat illusory? That is, we have a great many funds managers in the world that make their own living based on their ability to get people in or out of various marget sectors en masse for sometimes less than noble reasons - not the least of which is to shore up their own long-term or short-term positions in things. The result is that if these fund managers take turns telling us the market is getting better, there's a significant number of them that may be doing so for their own purposes - not because the fundamentals of the market have truly improved. It seems to me that there's room for another unpleasant jerk downward in stock prices in the short term - maybe not as bad as last fall, but not pleasant if you're heavily invested.

Third, since we've become such a services-oriented economy, isn't it much harder to "see" a recovery than in the past, when tangible increases in the manfuacturing sector (particularly housing) were pretty reliable indicators of economic health? Those, plus things like information on the nation's money supply, how many dollars are chasing how many goods - all to say nothing of the ultimate effect the astonishing amount of borrowing we're doing is going to have on our national debt. I can't help but think we're - at some point - going to see an inflationary cycle hit, and hit pretty darned hard. And if the Chinese decide, for whatever reason, to stop buying our debt, then what do we do?

Like I said, I'm not an economics or finance expert, just a layperson who tries to read the proverbial tea leaves, and right now things seem a great deal more "unsettled" to me than some would want us to believe.

Am I nuts?

No but you are pretty astute. The second wave that people are talking about are folds with 5 and 7 year adjustable mortgages that will adjust before long. Many of these folks will and have refinanced because the companies holding those loans have aggressively tried to do so before they became trouble. If companies continue to lay off employees and those employees are not able to find work, then those folks will likely have trouble paying on loans. There are also fears that in certain markets such as CA, Las Vegas, Phoenix, FL and the midwest, folks who are so upside down in their mortgages they may never regain their equity may just walk away from their mortgages, making the problem worse.

One major worry still out there is an expectation of defaults on a great many commercial loans. THis is still uncertain and how significant these will be isn't known yet. One sign was that the nations largest mall owner filed for bankruptcy several months ago because it knew retailers wouldn't pay rental rates necessary for it to cover their own debt payments so they filed before the damage was too large.

There are so many economists and so many opinions no one will ever know what is right by just listening to them. Even with my 25 years of Financial Services experience it is very hard to pick my way thru the talking heads that have a vested financial interest in what they say and those who truly are giving an unbiased opinion. My take is that the stock market went SO low up until March of this year that much of the rise in the market was a bounce-back to reasonable levels. Financial conditions HAVE improved without a doubt since then - but essentially from the brink of economic collamity to a point of great difficulty. Some companies are making significant and REAL profits. Others profit's are a touch illusory, based on cost cutting and not productivity or sales revenue or are being propped up by government loans (government ownership).

Bright signs are that a lot of the financial institutions that took TARP money are paying it back. Housing starts are increasing and there are places in the country, such as OKC, where the economy isn't too bad at all. Another bright sign is that the value of mortgage backed securities portfolio's owned by banks is stabilizing so the true economic health of banks is starting to clear up and in most cases, they arent as bad off as was previously thought. The rate of mass layoffs has slowed significantly. The rate of new unemployment claims has falllen significantly from a few months ago.

Unless more happens, we should hope to start recovery by the end of this year or early next year. Remember, 90% of us are still employed, we are still buying things but at a lower rate and we are still paying our cable bills. Recovery will be very slow and there will be ups and downs. Recovery will also be hindered by a significant tax increase and continued out of control spending by the Obama Administration. We are close to the point where they can start backing off some of their stimulus and instead, have a more narrow focus it on areas that are hardest hit.

Heard a blip on the news today that about 1/3 of the TARP money the government "loaned" out to banks has been repaid. They also said that the repayments resulted in a profit to the government of about $3 billion. Bank of America also announced today that it is going to repay some of its $45 or so billion in TARP money.