Chances are excellent we're more than halfway through. You have to go back to the early 1930s (the Great Depression) to find a recession that lasted longer than 16 months.
Since this recession started in late 2007, it will undoubtedly be the longest since the Great Depression. But as I'll show today, I believe the recession has already hit bottom and could end before the end of this year.
Stock prices typically bottom out in the middle of recessions. This is because stock prices "look ahead." They "see" recovery before recovery actually arrives.
Consumers don't look ahead like this... They are interested in their present situation, which is not good. So while stock prices can bottom in the middle of recessions, consumer confidence typically bottoms at the end of recessions. People don't see things getting less bad... It's a "darkest-before-the-dawn" type thing.
It helps to see what I'm talking about. So take a look at this chart, which shows how the stock market behaves during recessions (the shaded blue periods)...
The Stock Market Usually Bottoms in the Middle of a Recession
If you focus on the two longest recessions (1973-75 and 1981-82), you can see stocks bottomed in the mid-to-late innings of those two major recessions.
Now take a look at consumer confidence...
Consumer Confidence Usually Bottoms Late in a Recession
Again, focus on the last two "real" recessions... around '74 and '82. You can see consumer confidence bottomed just about at the end of those recessions. Today, consumer confidence sits at a record low – lower than in the 193-75 recession, which was the worst recession of our time.
These two things – the stock market and consumer confidence – paint a simple picture.
If the November stock-market bottomholds, and the record low in consumer confidence holds, we may be closer to the end of this recession than just about anyone thinks. It's too early to know for sure, but these factors suggest the recession may have bottomed, and things are already getting "less bad."
I believe and hope that's true. If I'm right, you should make a pile of money investing in both stocks and bonds in 2009.
Good investing,
Steve
P.S. If stocks fall below that November low, and consumer confidence keeps falling to even lower record lows, then we're not done yet. Either way, I'll keep you updated.
One more line in the sand this week... one we're close to crossing... one even more serious than $1.30 copper.
Today's "line" is the $34 level for the iShares U.S. Financial Fund (IYF). With over $500 million in assets, it's one of the largest and most liquid ways to make a broad bet on the financial industry.
We featured a chart of the IYF back in November 2007. Financials had just shattered a four-year uptrend. The mortgage mess was hitting the papers. We took a line from Dennis Gartman and claimed "more cockroaches would crawl out" of the financial sector. Crawl out they did... and the IYF was clobbered from $110 to $35 in just over a year.
The IYF carries large weightings in JPMorgan, Visa, Citibank, Bank of America, Goldman Sachs, Wells Fargo, and American Express. These companies live and die along with the public's ability to earn money, invest money, launch businesses, and generally just "get along." This fund hit a panic low of $34 a share on November 20. If IYF shatters this level and these stocks make another leg down, it's a huge red flag America isn't getting along at all. IYF, we're pulling for you.
Friday, December 19, 2008 The End of America Porter Stansberry predicts America will lose its place as the world's superpower and urges you to buy gold bullion.
Investors who know what they're doing will recognize the secret as soon as they hear it. But I bet if you try to tell your friends about this secret, they won't get it (and they'll continue to get killed in the stock market).
When you adjust South Korea's stock market for inflation, you see that an investor who bought stocks in the 1970s still hasn't made a penny of return today. It's the same way with Japan and Taiwan. Taiwan's stock market recently touched 1987 levels. And Japan's stock market recently touched 1981 levels.
Since late 1970, gold has risen at about 6% a year, compounded. But amazingly, when the price of gold is above its moving average, it compounds at a double-digit annualized rate. And when it is below the moving average, you lose money. That is a huge difference.
