Geez. I take a few weeks off for some summer vacation and a rally hits. I don't usually get surprised by the market, but this takeoff was unexpected given the macro headwinds we have been fighting. That said, with the Dow decisively breaking 9,000, the sideways pattern we've been trapped in has clearly been broken, and we are now in an upward cyclical bullish trend that is supported by most technical indicators.

In fact, this pattern is consistent with the arc of events discussed some months ago in this newsletter. In particular, the combination of a massive fiscal stimulus and even more massive monetary/credit stimulus is likely to trigger a strong bounce back at some point. That is what we are experiencing now as the country is awash in stimulus.

The bigger question mark is what happens after the effects of the stimulus are exhausted -- towards the end of 2010 and into 2011. My concern has been, and remains, that the United States really does not have a foundation for long-term growth. Historically, that foundation has been our manufacturing base.

Manufacturing jobs both pay more than service sector jobs and, perhaps even more importantly, have a higher multiplier effect when it comes to creating new jobs. Since 2000, however, this country's manufacturing base has been devastated by an emergent China rising on the wings of its unfair trade practices and cheap labor -- with its unfair trading practices far more important in the equation.

What I find most remarkable about all of this is the inability of the popular press and the many pundits trying to wax eloquent on the economic problem to grasp the significance of the erosion of our manufacturing base. A far too typical case in point is the ABC news show that runs on Sunday morning hosted by George Stephanopoulos. Watching that show this week, it featured both Treasury Sec. Timothy Geithner and former Fed Chairman Alan Greenspan along with four pundits on its roundtable.

During the entire hour, nobody on that show mentioned the importance of manufacturing in America. Instead, there was a lot of prattle about whether consumers would get out of their funk and spend our way out of this recession -- again, with all of these commentators oblivious to the need for Americans to have decent jobs at decent wages in order to be "good consumers." And by the way, the days of America's spending its way to prosperity are long gone. We are too deep in debt for that and we no longer have the job base to generate income for it.

From an investor's point of view, my point is that as you try to take advantage of this bullish uptrend, it is important to keep your eye on two things. The first is the possibility of a double dip recession. The second is something that people are calling the "new normal" whereby America's rate of economic growth stays positive but well below historic trend lines.

On the possibility of a double dip recession, I'm particularly paranoid about that possibility living here in California. The state's budget crisis has created a wave of new unemployment while all state employees are experiencing significant wage cuts. The effects of this crisis have to ripple through the state economy and given the size of the California economy relative to the nation's economy, one thing we know is that "what happens in California, doesn't stay in California." What I'm saying in a roundabout way is that the contractionary shock rippling through the California economy because of its budget crisis will inevitably have a contractionary effect on the US economy.

As for the new normal, this problem is what I've been warning about for years now. It follows directly from the loss of the American manufacturing base. This country cannot enjoy robust growth and rising income if we don't make stuff anymore. It just can't be done.

As a final comment, I would like to give each and every one of you a "reading assignment" for the week. A new book by the Alliance for American Manufacturing is climbing up the charts on Amazon -- I have a chapter in that book along with others like Clyde Prestowitz -- and it's a pretty good overview both of the problems we face and possible solutions. If you buy the book, please read it carefully, send your congressman a letter or e- mail about the importance of manufacturing in America, and then forward your copy of the book to the White House.