Investing Knowledge

So it that it? Is The Great Recession over?

All of a sudden, in the space of just one week, people are queuing to declare the end of the recession. It all started in the US when Intel (NASDAQ: INTC - news) 's quarterly results handily beat the market's expectations. Even better, its third-quarter revenue forecast was way ahead of Wall Street's predictions, sending its share price rocketing higher.

Things really got exciting when bearish US economist Nouriel Roubini said "The freefall of the economy has stoppedThere is light at the end of the tunnel. And the light at the end of the tunnel for once is not the one of an incoming train."

Stock Market Groupies Unite

Roubini was famously the man who forecast this whole financial mess, and ever since, his future predictions have taken on a guru-like status. So when he sees light at the end of the tunnel, stock market groupies stand up and take notice.

Adding to the mid-year festive cheer, China's economy has rebounded strongly, growing 7.9% in Q2. Chinese gross domestic product growth was substantially higher than expected, close to 16.5% on an annualised basis, according to Goldman Sachs (NYSE: GS - news) . This is the highest level of Chinese GDP growth since the post-SARS crisis recovery period in 2003.

It seems all those Chinese yuan, specifically the 4 trillion yuan (£360 billion) stimulus package, can make a difference.

All this good news translated into a sharply higher stock market, with the FTSE 100 index jumping 6.3% on the week. Adding to the general level of euphoria, the index of leading shares rose every single day of the week. Happy days for stock market jocks.

The Letter L

It was only 3 weeks ago that I said "the economic future is worse than you could ever have imagined". Admittedly I was involved in a death-defying duel with my fellow Foolish writer Harvey Jones over the state of the economy, and my job was to be as bleak as Ricky Ponting. Judging by the voting, I succeeded.

So what now? Should I put away my bearishness and embrace the green shoots of recovery?

Not so fast. My long held economic views remain largely unchanged. I believe we're in for an L-shaped recovery. Unemployment and house prices remain the keys to recovery, and there is precious little evidence of them bouncing back anytime soon. And this is despite base interest rates being at just 0.5%.

Massive Wealth Destruction

To my simple mind, I can't possibly see how it can be any other way. Millions of consumers across the globe have just gone through wealth destruction on an unprecedented scale.

Their houses are worth much less. Their pensions, save the lucky few on defined benefit schemes, have been smashed. Their share portfolios have been decimated.

Then there are the people who are sitting on massive credit card and personal loan debt piles. Meanwhile, unemployment is at 7.6% and on its way to over 10%. Put another way, economists expect another 800,000 people to join the job queue between now and the middle of next year.

Given all that, do you think consumers will suddenly open their wallets and purses and start spending all over again? Sure they will take tentative steps, like upgrading from the Tesco (LSE: TSCO.L - news) (LSE: TSCO) and Sainsbury (LSE: SBRY.L - news) (LSE: SBRY) super-duper-value home branded food, but they are not suddenly going to splurge on a new car or on a new LCD TV from DSG International (LSE: DSGI.L - news) (LSE: DSGI).

Substantial Rewards

Don't get me wrong. I'm not a pessimist. I'm not stocking up on bottled water, baked beans and bullets. In fact, I like to think of myself as an optimistic realist.

Of course, I could be wrong. China may well be the country that lifts the globe out of recession and into growth. Mining companies like BHP Billiton (LSE: BLT.L - news) (LSE: BLT) and Rio Tinto (LSE: RIO.L - news) (LSE: RIO) could lead the next commodities boom. Inflation may become the new battleground. George W Bush may receive an honorary knighthood from the Queen and Ricky Ponting may be voted BBC overseas sports personality of the year.

All that said, now is not the time to give up on the stock market. The quick and easy money may already have been made, but many shares remain unloved, overlooked and cheap. Those are exactly the companies smart investors are concentrating their efforts on now. As usual, finding them is not easy, but when you do, the rewards can be substantial.

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> Bruce Jackson doesn't have an interest in any of the companies mentioned in this article.