Is This a "BS" Shaped Recovery? (SPY, IEI, TLT)

Many economists are debating if this recovery will be a "U", "V", "L", or even a "square root" shaped recovery. These of course are all describing how a chart would look if looking at GDP Growth, stock performance, etc. through time.

I feel like introducing one more shape into the mix, a "BS" shaped recovery.

When looking at the economic data as a whole I see improvement from the Armageddon situation we were in late last year and early this year, but things are far from a steady recovery. Despite the fact we are already at 9.7% unemployment and 15% or so underemployment, we are still loosing jobs every month. Yes, the rate of loss might have stabilized or is gradually improving but this is hardly something to get excited about.

Housing, although stable the past 2 months, still has to survive extended 10% unemployment, another rash of adjustable resets starting later this year, a continued dump of foreclosures on the market, and end to the $8,000 tax credit, and rising interest rates over the longer term.

Government spending and stimulus may have helped prop up parts of the economy in the short term (and some was necessary at the time to avoid catastrophe). But at some point this will need to be pulled, and the timing will need to be perfect to avoid either rapid inflation or a double dip recession.

Another hidden piece to this puzzle that no one is talking about, is the change in accounting rules enacted earlier this year. The change of mark-to-market has propped up financial companies "earnings" over the past 6 months. This wrinkle may hide the true health of several financial companies’ health for quite a while, but not forever.

Finally the bond market (NYSE: IEI, NYSE: TLT) is trying to tell us something as well, where rates have been nudging down steadily over the past month. This of course indicates that bond traders feel muted growth at best going forward is on tap.

Despite all this the S&P 500 (NYSE: SPY) is at 1044, roughly 15-20% below where it was before Lehman fell last year, and 50-55% above its March lows. Soon the market will tell us what shape the recovery will be, but at these levels one has to weigh the future possible gain and the possible risk