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Farr: Is This Rally or This Economic Recovery Real?
CNBC.com | March 14, 2012 | 12:59 PM EDT

Do you believe the economic recovery is real and sustainable?

Those are really two questions, and we suppose someone will want to parse our definition of “real.” The S&P 500is up 10% over the past twelve months and 24.7% since September 30, 2011 . The recent rally is filling Wall Street with feel-good breezes that are lifting all moods. The higher it goes, the higher portfolio values go, and folks begin to feel whole and maybe even a little bit rich again.

The seductive siren song is wafting from Federal Reserve speakers and furtherance of Greek life-support has driven share prices higher. Investors are increasingly more sanguine despite historically high profit margins (which are mean reverting) and still-tepid demand growth. According to a generally positive report from the Wells Fargo Economics Group, “The weak underbelly of the recovery continues to be sluggish income growth and the massive destruction of household wealth from lower home prices and the 2008 financial crisis. Household wealth remains $8.4 trillion lower, with financial assets $3 trillion lower, and the value of real estate holdings $6.7 trillion below their respective pre-crisis levels.”

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