Leading economists and analysts are mixed in their outlook, but there is plenty of evidence to suggest continuing storm clouds up ahead. While the stock market may be celebrating, the larger economy still has a long way to go.

Here’s a few things to look out for:

• Unemployment is still worsening. When the national unemployment rate goes above 10% (which is already has in many states) will this further contract consumer spending? In the U.S. consumer spending still acount for 70% of GDP. In the U.K. that figure is only 65% of GDP, so perhaps we still have a ways to go down.
• The specter of inflation. The U.S. has $50 trillion (yes, trillion) in unfunded liabilities. Many analysts fear this will lead to significant inflation in the next three years.
• What about innovation? The credit crunch has most impacted small businesses and entrepreneurs, the seat of innovation in the U.S. The number of patents files has been declining, not a good sign for America’s future innovation.

So if the stock market rally isn’t indicative of the weakness in the broader economy, what’s causing it? Many argue that we’re simply seeing the effect of massive government spending. When that spending stops will the economy be able to pick up the slack?

General Motors announced its sales dropped 45 percent, and Chrysler reported a 42 percent decline from September a year ago. Ford fared a bit better with car sales declining only 5 percent from September 2008. However, Ford did register a 5 percent uptick in sales for the entire 3rd quarter, the company’s first quarterly increase in four years.

Overseas automakers were also hard hit in September. Sales dipped 20 percent at Honda, 7 percent at Nissan, and 13 percent at Toyota.

Korean carmaker Hyundai was the lone bright spot in the industry. Hyundai said its sales rose 27 percent in September. Due to its low priced cars, the automaker has been gaining sales momentum throughout the recession.

The federal cash-for-clunkers program generated almost 700,000 sales in July and August, bolstering carmakers. The program provided up to $4,500 in credits to consumers who traded in an older, inefficient vehicle and bought a new one with better gas mileage.

The short answer is: not as much as you might think. According to Fortune magazine’s ranking of the 50 most profitable industries in the United States, health insurers’ after-tax profits were only 2.2 percent of revenues in 2008. Of course, even though we’re talking about a fairly small profit margin, there’s still a huge amount of revenue involved, so the profits are high in absolute terms.

For example, Wellpoint, Inc., a large insurer selling mainly group-insurance policies to relatively large employers, had revenues last year of $61.572 billion. That, by any measure, is a lot of money and we’re talking about just one insurance company here. 93% of Wellpoint’s revenue came in the form of premium payments.

WellPoint’s after-tax profits in 2008 were 4.07 percent of total revenue. The year before the profit margin was 5.47 percent. So yes, insurance companies do make a lot of profit, but as a percentage of total revenues it’s not huge.

Last year, during the same period, the company announced losses of 747 million dollars. MasterCard’s profit was generated by increasing fees on customer accounts and reducing internal costs.

In contrast to this year’s profit, MasterCard reported a loss of $5.7 billion for the first six months of last year.

This year, the company’s American group expenses decreased by 13%, reaching 722 million dollars. The company also reduced funds allocated for advertising and marketing by 36% and trimmed administrative and staff costs.

Higher commissions and increased use of credit cards by customers increased Mastercard’s revenue by 2.7%, reaching up to 1.3 billion dollars. Value of MasterCard transactions processed increased by 7.9% to 5.6 billion dollars.

As a result of the recession, many consumers are turning to prepaid credit cards.

Auto sales by the carmaking giant – owner of Mercedes-Benz – decreased by over 23% in the first half of the year to 38.29 billion euro from 50 billion euro in January-June period of 2008.

Daimler sales dropped by about 270,000 vehicles to 732,800 cars in the first half of this year compared to over one million units sold in the corresponding period last year.

Daimler eliminated over 17,000 employees and had 257,000 on staff as of June 30th. At last midyear, Daimler had 275,000 employees.

Mercedes-Benz, which generates over half of the business group’s revenues, registered a decrease of 22.7% in sales in the first half to 19.63 billion euro from 25.41 billion in the same period of past year.

Despite Goldman’s stellar quarter, the results of other banks are less encouraging. Georges Ugeux, Chairman of Galileo Global Advisors, is of the opinion that to assess the recovery of financial system we must evaluated health of commercial banks, not investment banks.

“To see if the financial system was repaired, we must analyze the impact of the crisis at banks that are engaged in private credits”, says Ugeux. “The bank results may be less encouraging.”

One example is CIT Group, which today is struggling with bankruptcy. For this reason, the financial results of JP Morgan and Morgan Stanley this week will be more telling.

Chairman of Galileo Global Advisors, Ugeux is Dr. in Law and Bachelor of Economics at the Catholic University of Louvain in Belgium. He was a banker at Societe Generale, Morgan Stanley, Kidder Peabody, President of the European Investment Fund and Chairman of International Division NYSE. Galileo Global Advisors is a bank and consulting business founded by him.

Here’s how it works: when you sell your policy to a stranger, that person pays you a cash sum and continues to pay the premiums on the policy to keep it current. Here’s where it gets weird: the stranger to whom you sold your policy only profits when you die.

These transactions are called life settlements and they are becoming more common. Huge banks like JPMorgan Chase and Goldman Sachs invest in packages of life settlements because the return is not correlated with the stock market. So as an investor, life settlements can be a great way to diversity and hedge your stock market exposure.

Investors in life settlement policies prefer people over 65 who are insured for at least $500,000 or more. So would you sell your life insurance policy to a stranger?

Major Banks in the United States say that they are on the point of return and is rushing to return money received from the state to make face the crisis broke out in September after the bankruptcy of Lehman Brothers.

The five of them were in first quarter on profit, shares and prices are rising, KBW Bank Index and the doubling of March 6. U.S. Treasury Secretary Timothy Geithner stated at the beginning of May, after implementation of stress tests designed to determine the capacity of 19 banks to face the deterioration of economic conditions, as Americans can be confident in the stability and soundness of banks.

However, this return could be short, writes Bloomberg. Analysts who have examined quarterly profits and government tests say that the changes made in terms of accounting rules and optimistic estimates make institutions to seem stronger than they are.

The reason of the Bank of America is the desire to eliminate the debts created by state aid collected. A good sign we would say, if keep in mind that the amounts are part of a plan to support banks in difficulty.

Reimbursement will be supported including the capital increase. Worth over 35 billion dollars, it would take place by the end of September, according to sources cited by the publication “Financial Times” taken by Reuters.

Through a bond issue, Bank of America has already obtained a capital increase of 13.47 billion dollars and concludes, therefore, an important step in the goal set by the U.S. government after the application of stress tests in the banking system.

The results of stress tests, organized by the U.S. central bank, Federal Reserve have drawn a line between the banks with a better financial situation and those facing problems, indicating the amounts they need to stabilize finances.

The tests have shown that 10 banks needed additional capital to make against future losses, if the recession will worsen. Bank of America needs 33.9 billion U.S. dollars, while Citigroup needs 5.5 billion dollars.

Also, Wells Fargo must collect 13.7 billion U.S. dollars, and GMAC 11.5 billion U.S. dollars. Obama Administration hopes that these banks will fill gaps from private sources, although the Fed chief, Ben Bernanke, said that the government is prepared to take action, if it’s necessary.

“Government, through Treasury, is prepared to provide additional capital necessary to ensure that the bank will cross this tough economic period, “said Bernanke.