BY DR. STEVE SJUGGERUD, Analyst and Editor, DailyWealth.com
I know it’s bad out there. Nevertheless, you must remember, this recession WILL end.
Chances are excellent we are 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. However, as I will tell you 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 do not look ahead like this. They are interested in their present situation, which is not good. Therefore, while stock prices can bottom in the middle of recessions, consumer confidence typically bottoms at the end of recessions. People do not see things getting less bad. It is a “darkest-before-the-dawn” type thing.
In the two longest recessions (1973-75 and 1981-82), stocks bottomed in the mid-to-late innings. During the same major recessions, consumer confidence bottomed just about at the end. In mid-January, consumer confidence sat at a record low - lower than in the 1973-75 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 bottom holds, and the record low in consumer confidence holds, we may be closer to the end of this recession than just about anyone thinks. If stocks fall below that November low, and consumer confidence keeps falling to even lower record lows, then we are not done yet.
It’s too early to know for sure, but the stock market and consumer confidence suggest the recession may have bottomed, and things are already getting “less bad.”
I believe and hope that is true. If I am right, you should make a pile of money investing in both stocks and bonds in 2009.
Weekly Wealth is written by the analysts and editors of DailyWealth.com, a daily investment newsletter focused on the market’s best contrarian investment opportunities. Learn more by visiting www.DailyWealth.com.