MONDAY OCTOBER 1ST 2007 - STOCKS STRENGTH VERSUS ECONOMIC REALITY

The stock market is usually a leading indicator of economic growth. With the market once again trending upward, there seems to be a disconnect with the economy. Reports on employment, sales, production and homes have been weaker then expected. Chances of a recession are not quite 50/50, but it is somewhere in the neighborhood. Housing is a small portion of GDP. It's effect on the economy, however, is critical. Residential investment damped GDP growth prior to 8 of the last 10 recessions. Investors seem to be banking on overseas economic strength. Exports account for more then 1/10th of GDP.