Consumer confidence has been up six months in a row.  Wall Street has seen a two-month rally that included a whopping 39% rise in the S&P from the recent rock-bottom lows. Over the past several consecutive weeks, new U.S. jobless claims have dropped. Even quarterly reports from the battered banking sector suggest to some that the worst-case scenarios will not happen.

Does all this signal that the recession, now 18 months and counting, America's longest recession since the Great Depression of the 1930s, is behind us?   Most financial experts insist that the much-hoped for recovery is not here yet, despite the appearance of hopeful data.  They also remain concerned that when the recovery does appear it will be weaker and require a longer period to build momentum than in the past.

To help predict when the recovery will occur, Francis X. Diebold, the co-director of the Wharton Financial Institutions Center developed a new statistical tool to track economic recoveries and declines. Diebold’s model suggests the U.S. could be in full recovery mode by the fourth quarter of 2009 if current trends continue -- but Diebold concedes that is a large "if."

But if recent trends and the indications of Diebold’s statistical model aren't definitive proof of a recovery, is there any way for MidCap’s clients and other business owners to know for certain that it is the right time to resume investing in their businesses or to consider selling?

Given recent trends, some economists -- even those who predicted financial gloom a couple of years ago -- are seeing a few early signs of optimism. A recent survey of 45 professional forecasters released by the National Association of Business Economists showed that 75% predicted the economic recovery would be underway by the late summer or early fall, and none of them expect the recession to last later than the early months of 2010.

One issue economists worry about is whether interest rates will rise in response to rising government debt to finance the economic stimulus programs, bank bailouts and general government spending. The yield on U.S. government bonds rose to the highest levels in six months near the end of May, largely driven by worries over government borrowing.  How much that will dampen the recovery before it has a chance to get off the ground still remains to be seen.

While the recovery may take place later this year, many economists believe it will be slow and plodding.  It will take a long time to return to the 4% or 5% rate of growth in the GDP while keeping inflation low.  As a result, MidCap Advisors does not believe we will see significant signs of recovery and corresponding increases in valuation multiples until mid 2010.