Looking for key signals

The markets and governments around the world are now beginning to say that the worst of the recession is behind us. Even large banking institutions in the US are looking to repay TARP funding so that can return to private ownership. In Europe senior policy members are saying that a sustainable recovery could be starting without requiring any further stimulus.
The confusing thing is that if there were a real recovery then we would be seeing real recovery in manufacturing capacity utilisation.
Up till now corporate organisations have been running down inventory as customers have delayed purchasing decisions because of worries about job security etc.
Recently we have seen plenty of surveys about consumer confidence returning and that house prices might be bottoming out.
These surveys are supposed to give us a window into the future sentiment of the economy.
Are these surveys correct? Who knows?

What we do know is that a recent manufacturing capacity survey said that capacity utilisation is near and all time low.
Jobs are continuing to be lost and people are continuing to delay their purchasing decisions. Until people begin to increase their purchases and organisation begin to increase capacity and begin hiring again short term confidence surveys etc will do very little to accurately predict the direction of the economy.
During the week Fed Ex, a barometer of general activity in the wider economy was negative and said we were a long way from exiting the recession.
Organisations such as Fed Ex are good indicators into the activities of corporate activity in the real economy and can tell us twice as much about the economy than the plethora of short term surveys that are consistently released.

Where now?

Where does the rally go next?

Interesting to note that Fiats global expansion plans are not proceeding according to plan. It failed twice in its bid to expand its US and European presence in a tie up with Chrysler and Opel in Europe.
Where now for Fiats expansion plans?
Answers on a post card to the Fiat management:

The US market rally has seen the main indices reach new highs for 2009 and show a gain on the S&P of 9% over its 200 day moving average.
Why are the markets acting so positively? Is it because of the very tentative signs of a stabilisation of the housing market in the US and UK?
Is it because the financial system is stabilising and anticipated write downs may be close to an end?
Is it because China and the emerging market economies are still growing?
Is inflation on the way back? Will the global stimulus packages introduced by the US government cause the dollar to weaken and commodities prices to continue increasing over the next few years?

It was interesting to listen to Professor Niall Fergusson yesterday; his book the “Ascent of Money” documents historical financial events.
In the past capitalism would have let weak institutions go bankrupt and only the strongest would have survived. Weak institutions such as Citigroup and Bank of America have been saved, are we just temporary band aid for weak institutions?
Time will tell.

Commodities have now replaced technology as the best performing investment category of the year.
Cyclical stocks are seen as early indicators to an improving economy but with unemployment still rising and uncertainty about the government stimulus packages and future inflation are we too optimistic about the future.