In times of fear, the courageous get wealthy. We're seeing smart money get invested in this economy, including in real estate. Don't get me wrong - there are a million ways to screw it up (that's why you need an expert broker/adviser). But the underlying dynamics are getting more solid with each new economic report.

Real Gross Domestic Product

The following chart, from the Bureau of Economic Analysis at the Department of Commerce, shows things are moving in the right direction. What you see is a flat peak of GDP levels in 2008 with a precipitous fall that makes the dot com recession look like a blip. But then we see most recently three quarters of economic growth in a row, and this quarter is off to a great start too.

 GDP vs. Unemployment

The following chart shows - since 1940 - the relationship between GDP levels (blue) and unemployment levels (red). The shaded columns show past recessions. At first glance, you see a) we're in the longest recession since the Great Depression with the worst GDP contraction since as well, and b) the extreme dynamic of this recession. You see normally unemployment is a leading indicator of GDP recovery, which itself is a leading indicator of employment recovery (bust-boom). Unlike the last major recession in 1981 and 1983, in which the Fed (under Paul Volcker) caused unemployment to rein in inflation, this recession was deflationary - it was a collapse in demand (when the house of cards fell). 

But look at the GDP recovery right now vs. the unemployment response. For such a swing in GDP, we don't see the resulting swing - yet - in employment; there's just a little hook. For now. I think any "second wave" or "W" shape effect stretches credulity at this point. The employment situation will continue to improve. I said last year on this blog that job loses have to slow before jobs can gain. Well it's slowed to a level halt pretty much and now we should start to see net gains for several quarters to come. If the GDP continues to recover at this pace as the chart shows, we can expect healthy net gains.

Personal Consumption Expenditures

In the next chart, it's easy to see the white-knuckling collapse in consumer demand in 2008, followed by the awkward sideways jitters of 2009. But in late 2009 through now in 2010, personal consumption has been rising steadily and at a good pitch. When people spend, whether it's on clothes or cars or homes or appliances -- it means people are feeling more confident about their personal financial security. Spending recovers usually in smaller areas and then larger. As confidence returns to the consumer market, and as consumers exercise spending judgment in a new mindset in the wake of the recession, and with new consumer protections and badly needed new regulations in place, we should be set for several quarters of moderate but sustainable economic growth.

Are there still risks? Of course. But if we can be recovering in this way from the Great Recession, an economic catastrophe that nearly destroyed our economy as we know it, then I think it stands to reason that future risks can be managed also. Ain't nothin' easy in life. But clearly there is now solid support for a courageous outlook. So have courage.