Let me ask you this question: "Have you ever heard so much negative financial news in your life?" The likely answer is no. Everywhere we look, the new...
Let me ask you this question: "Have you ever heard so much negative financial news in your life?" The likely answer is no. Everywhere we look,
the news is terrible...outright depressing.
Talking about depressing, I've never read so many news stories telling us we are headed for a depression. (Do I believe we are headed for a depression? No.)
To alleviate the concerns of my dear readers about our economic future, here are four positives we need to keep in perspective:
--- The amount of "bearishness" or "doom" out in the marketplace today is at all-time high. Give me one economist calling for better times ahead...and you will find there are none. All the doom and gloom is actually good for the stock market and good for the economy, because, in their history, neither (the stock market nor the economy) has ever done what the public has expected of it.
--- After years of borrowing like drunkards, consumers have run out of money and out of credit. Large American corporations (and there are plenty of them) have been adding employees and more capacity to their operations for years. It was a good run. Now, these same companies need to contract back to their core operations -- the ones that made them great companies in the first place. Excessiveness is a thing of the past...at least for now. For companies, it is back to being lean and mean, which results in greater profits.
--- In the Depression of the 1930s, there were 10,000 banks that closed their doors. Depositors lost their savings. In the U.S, we have lost less than 20 banks during this credit crisis -- and the government has $250,000 in depositor insurance to protect customer savings.
--- Stocks will fall further because they are still overvalued. The S&P500 trades at just under 14 times its earnings. Bear markets do not end until earnings multiples are in the single digits. Somewhere ahead, a giant, unprecedented, once-in-a-generation, stock-buying opportunity will present itself. And with stocks falling so quickly, that opportunity may not be far away. That is the good news for investors.
** Michael's Personal Notes:
The stock market, as measured by the Dow Jones Industrial Average, is down 52.5% from its all-time high reached in October 2007. The great majority of investors today have never seen such a decline in equity prices. We are going from "freely spending" consumers to consumers obsessed with savings. The ramification of the change in consumer spending behavior is being played out in the stock market every passing day.
** Where the Market Stands:
The Dow Jones Industrial Average is now down 23.3% for the year. It takes 7.4 ounces of gold to buy the Dow Jones Industrial Index. Bull markets end when stocks reach extreme overvaluation. Bear markets end when stocks reach depressed valuations. As "unbearable" as it may sound, stocks would not be bargains by historical standards at Dow Jones 5,000. In other words, we have plenty of room on the downside for big-cap stocks.
** What He Said:
"Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis." Michael Lombardi, in PROFIT CONFIDENTIAL, April 8, 2004. "We will wish Greenspan never brought rates down so low as to entice so many consumers to have such big mortgages." Michael Lombardi, in PROFIT CONFIDENTIAL, April 27, 2004. Michael first started warning about the negative repercussions of Greenspan's reduced interest rate policy in 2004.
Profit Confidential
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