Before long, we will get the "official announcement" that the recession ended in June, five months ago. The end of the recession does not mean that we are back to old highs, but that the direction of the economy is once again up.

While the report from the Gallup Poll suggests that some of the bounce in consumer attitudes might only be a reflection of the Halloween Holiday Spirit, a number of improving trends have developed. Employment is the forever lagging indicator; when there is a downturn, companies try not to lay off their employees, in hopes that the recession will be short-lived; when a recovery begins, companies are slow to hire, until they are sure that business is going to continue to improve. Stock prices, a leading indicator, falls early and rises early. Stock prices are up 60% since February.

Home sales fell 2.7% in August; not great news but not unusual. Home buyers have always liked getting settled well before the start of the school year. Home sales August 2009 were up 3.4% over home sales August 2008, so, while the headlines say there was a decline, the rebound continues. The rebound can be seen in the depletion of inventories. New home inventories are at the lowest level in...

more than 7 years and total home supply of 8.4 months is the lowest since April 2007. It would not take much of a pick up in sales rate for inventories to drop to the healthy level of 6 months supply.

A couple of years ago, MSFT's browser market share was better than 90%. Today, MSFT holds a 67% share. The problem for MSFT is that it behaved like monopolists do. It stopped discovering what its customers wanted and instead soaked them for excess profits. Google (GOOG) is preparing to serve-up a much better...experience to MSFT customers.

Google has written a plug-in for MSFT's E-8 browser that allows software developers to easily work around MSFT. MSFT customers will be able to access Google Chrome from within MSFT's browser. The benefits will include higher speed of results and wonderful new results.

In the 1970's, after a long period of negative real interest rates, the US experienced hyper-inflation. In the past year, our government has inflated its balance sheet while corporations and individuals have worked at paying down debt. The ballooning of the Fed balance sheet has caused many folk to believe a period of hyper inflation is coming. The following chart shows that conditions are not nearly the same as after the 1973-74 recession. Thus we can expect different results.

[click to enlarge]

One of the ways to tell if you should be buying stocks or not is to look at inflows to mutual funds. In the chart below, you can see a strong pattern.

The public poured money into mutual funds at the top of the market in 2000. Last year, they withdrew funds. They were over-invested in the years after the peak and now they are under invested. Stocks will be much higher before a switch in public sentiment brings the masses back to the market at higher prices.

Sony Corporation (SNE) is the grand old name of transistorized sound machines. Sony did not invent the transistor or the transistor radio, however, Sony was an early licensee of the transistor and the first to sell transistor radios at a profit. From 1955, until recent years, Sony was the sound machine leader. The Sony Walkman was the portable music device of choice, until Apple (AAPL) took a dominating lead in both Internet enabled phones and music sales. Sony still has almost double the revenues of Apple, but Apple's growth rate has been huge. Since the top of the Internet 1.0 bubble, shares in SNE have fallen in price by 80%; shares in Apple have climbed 520%!

IBM is the grand old name of computers, but Microsoft (MSFT) has held a virtual PC software monopoly for almost 30 years. Apple could have been in Microsoft's shoes, but, while Apple has always made great products, it has failed to share the wealth with enough partners to make its software the primary choice. Most consumers of computers are not willing to pay the extra price to own an Apple. The exception has been the iPhone.

The famous bond market guru, Bill Gross, is pessimistic about the economy and about home ownership. He believes home ownership will fall from 69.2% of the population to 65%. He could be right or he could be trying to sell a few trillion dollars worth of securities, but, in any event, powerful forces are encouraging people to buy homes.

Mortgage rates have dramatically lowered the price of homes. Earlier this year, homes were the most affordable in recorded history. The brief run up from 4.65% to 5.6% lowered affordability but since then there has been a sharp jump in real incomes and a steep dive back to the 5.2% range. More people qualify for loans than realize it. Those who do not own a home, are faced with bargains of a life time. High mortgage delinquency rates are putting pressure on sellers to take the first offer made, first time home buyers are being told by real estate sales reps about the deals that are available and "animal spirits" are stirring.

The current bull market began on March 9; it has a long way to run. Even after average gains of about 40%, stocks are still very cheap. The wet blanket of fear that covered the market and the economy is drying quickly.

PC World just posted an article saying that their money is on Microsoft (MSFT) in the Microsoft--Google Office App War. I put my money on Google (GOOG).

PC World notes that Microsoft Office is used by 80% of businesses and that Microsoft is responding to Google by offering an online version of Microsoft Office for free. PC World is focused on the wrong question. They're looking at trees and have not stepped back to see the forest.

Some Netbook computers are breaking the $300 price barrier. DELL has announced that it will produce a computer that uses "TV white space". Google (GOOG) is elated.

Google makes its money from advertising. It does not make telephones or computers. According to one of Google's founders, the advent of "white space Internet" will increase Google's advertising revenues by 30%!

It is painful not to have made a fortune off the decline in oil prices. For months on end, I wrote that conventional wisdom was wrong. I repeatedly said that the price of oil was not going to keep going up but that it would ultimately come back down to the marginal cost of production, which is less than $35 per barrel for most of the oil produced. I wrote thousands of words but I blindly continued to invest in other areas. As far as I know, not a single reader, including myself, bought inverse oil funds or shorted the price of crude.

Now we are in a treasury bond bubble. In this case, I wrote hundreds of times that bonds would rise to a peak after commodities begin to fall sharply. Unfortunately, I kept wanting to believe the optimistic story that the decline in gasoline prices would show up quickly in lower home mortgage rates and an increase in consumer spending. I invested with emotion while ignoring my own words about the natural order of progression. I said that stocks will go up after the bond market rally. I skipped ahead and bought stocks when I should have bought bonds.

A friend recently demonstrated the Apple (AAPL) i-phone's ability to find the song hummed to it; a neat trick but not a "Killer Application". Killer APPS are "game changers". They are the things, that when your neighbor gets one, you have to have one. Today, Google (GOOG) voice search goes live on the i-phone. Ask 'Where is Shell Gasoline?' and the i-phone provides a Google map of your current location with Shell stations marked with teardrops.

Sophisticated voice systems, such as those sold by Nuance (NUAN), are exceptional tools, but they require practice time for the computer to learn the nuances of each voice. Google's recognition ability has a long way to go to reach the accuracy of the Nuance systems, but many questions will be correctly answered in the early days and most will be answered correctly in future days. As this technology is widely adopted, productivity will take another giant leap forward. Trillions of questions will be asked. The answers will ultimately save consumers Trillions of time and dollars.

In the early 1980s, when US car companies faced mandates to increase fuel efficiency, high energy prices soared and, Chrysler faced certain bankruptcy, a silly mistake was made. The US government bailed out Chrysler. I took advantage, buying shares in Chrysler for $2.37 each. The shares went to $80 each in just a few years. But, the bail out was a disservice to the auto industry and to America.

Some 25 years later, history rhymes. The remains of Chrysler are all but bankrupted and Ford (F) and General Motors (GM)are bleeding profusely. Auto executives and union leaders are arm twisting legislators, begging for bailouts. The companies should be forced to file bankruptcy, but will it happen?

The cavalry bugles can be heard in the distance, relief is on the way. In recent days, consumers have been pleased to spend $20 less on a tank of gas, but the gas that will sell for $2 per gallon is just entering the far end of the pipeline. A few weeks from now, consumers will be pleased to save $40 per tank (20 gallon tank). The sound of other bugles, telling the story of relief can be heard. It is not just the price of gasoline that is coming down.

A friend in the plastic business mentioned that his company posted a huge price increase in July. At the time, oil was trading around $145 per barrel. My friend admits that his company will hold up prices for as long as it can. The company needs to rebuild its balance sheet before adjusting to the current price. The decline from $145 to $62 is a 57% decrease in his company's prime raw material. Inflation is on the way down!

A reader asks the proverbial $64,000 question? If you like bank stocks, which ones do you buy? And the corollary question, do you buy an ETF?

There are good things and bad things about ETFs. Numerous popular books come down for and against ETFs. I like good old American stocks. I dislike having to buy both the "see" and the "saw" of an industry. Buy a health care fund and you are buying the hospital that is a labor intensive buyer of drugs and you are buying the drug company that spits out expensive pills at a mile a minute and sells them to hospitals. (After spending millions to develop them). The two stocks are very different animals.

Oil is down to $94 this morning. There should be no need to mention obvious winners such as airlines, truckers, mortgage holders, etc. When I mention Japan, I sometimes get a "why?" response. Again, Japan, as a country that must import almost all of the oil it uses, Japan benefits greatly from lower oil prices.

(EWJ) is a Japanese exchange traded fund. Back in 1999, when the US market was out the roof, EWJ made a high but not an extraordinary high of $16.30. At the April 2003 bottom, it made a low of $6.50. It rebounded to $15 by May of 2006, but has since fallen to $11.06. The Yen is soaring on the news that oil is down $5 a barrel. Japan is going to see a good market run. The next EWJ peak will be 3 or 4 years from now. It is likely to be higher than $35.

The story for Japan is not much different than the story for other "opposites of oil". Of course, the "opposites of gold" will also enjoy the decline in commodity prices. A small amount of earnings, grown relatively steadily, discounted by bond rates of 3.5% becomes more and more valuable as the years pass. We are set up for a great market run. The "market bottom" late in the contraction phase will not be the bottom for all stocks. The bottom for many companies was made in January or March of this year. The broad market averages, which is heavily influenced by big cap oil and basic material stocks, will bottom soon.

The GBP (Great Britain Pound) has jumped in front of the AU$, in the race to the bottom. The fall of the AU$ was arrested by the cut in AU short rates from 7.25% to 7%. The BOE continues to resist moving rates down and the GBP continues to fall. Since July 23, the GBP has fallen from 215 to 192 against the Japanese Yen (JPY). Since August 8, it has fallen from 2.05 to 1.909 against the Canadian Dollar (CAD). Since August 12, it has fallen from 1.28 to 1.23 against the Euro. Against the US Dollar, the Pound reached 2.000 on July 15 and has since fallen to 1.772!

One can look at respective yield curves to see the reason for the fall.

The month of September has historically been the worst month of the year for stock prices. It is a bad month because of uncertainty. Who knows what compromise the congress will make as a part of passing a massive federal budget, one that is fast approaching 3 Trillion Dollars?

This year is different in that the congress has not even attempted to pass a budget. Democrats have decided to wait until after the elections, when they expect to pass hundreds if not thousands of new spending programs.

We all know the old saw that you can't have your cake and eat it too. Still, some folks see depression if the economy continues to slow and hyper-inflation if it speeds up. In effect, they see stagflation, a beast that hides out with Sasquatch. Sasquatch and Stagflation are often spotted just briefly at the tail end of recessions - the US exception being the late 1970's when the misery index (the sum of the inflation rate and the unemployment rate) went through the roof.

Thirty-year home mortgages average slightly more than 1.5% above the 10-year treasury bond rate, in normal times. These are not normal times; or are they? Numbers have a nasty habit of returning to normal but aberrations can last for decades.