I'm still enjoying the rally. Unless something really bad happens now, we had a global bottom on March 9: Haines-Kass bottom. Let's remember people who nailed it.
I'm looking at the stock market with huge optimism. Yes, current rally is probably losing steam. There are indications that sentiment changed to bullish, and market usually does directly opposite from what is expected from it. We might have a retracement, maybe quite a deep one. But I don't think it's going to cross Dow Jones 7500, never mind reaching bottom again.
So, can we honestly say that it's all clear for economy? After all, a lot of economists claim that market usually recovers 6 months ahead of economy (if you do a quick check, sometimes it does, sometimes it doesn't). Not so fast.
Let's remember the previous depression, the Great one. Market bottom happened in July 1932, but depression lasted many more years afterwards. There are a lot of different opinions on reasons for the Great Depression, why it was so bad etc. But everybody agrees that tax hike in 1937 made things much worse.
Are there any headwinds in the government? The answer is simple: plenty. They are listed below in no particular order.
Tax hikes. They are on the agenda all the time. New taxes on securities traders, tax rule changes on international companies, additional taxes on rich. Don't forget, this year started with huge ($1 a pack) tax increase on cigarettes. That's on federal level. States are pushing their own increases. That's probably the biggest danger right now.
Medical reform. I don't know how to make health care work, but I know how to make it not to work: "single payer system", i.e. outright nationalization. I lived in such system. And if you believe that USA can make such system work better than USSR, I have some lakes for sale in Minnesota. Any health care reform under current administration means essentially new (and not small) taxes.
Commodity prices. The picture of oil futures market is clear: huge index buying, which, when translated to plain English means that funds which lost billions last year in oil futures investments are back in the same game. They (again) think that they can bet on limited (in their minds) resource when inflation (in some inflamed brains, hyperinflation) makes money useless. The danger is that these guys can run price of oil up to the levels when they start hurting economy, which is not in the best shape.
Attacks on Wall Street. Yeah, there are greedy people there. I just wonder if there is any place in the world without them. But those attacking Wall Street don't understand that without it US economy won't work.
Armed conflicts. Keep a worried eye on Pakistan, North Korea, Iran and Russia. Any significant conflict can damage the economy of the world.
Piracy. Don't underestimate its effect on the world trade.
This list is not complete. But I think these are the biggest dangers for economy. Let's enjoy the stock market but remember the bigger picture.