December 3, 2008, 6:00 am

Market crashes because US is in a recession??

by: admin    Category: Investment, Market and Risk
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It’s an odd market isn’t it? Last week, for a moment there, we started to think the worst was past us, that the market had reached its bottom, the market actually went up by record numbers and looked poised to return. Sure, we expected some bumps as bad news would come out of the market…

But how could a Friday announcement by the National Bureau of Economic Research spoil all of it sparking a decline of almost 8%. They must have announced some terrible news, some big company going bankrupt right? Hmm not quite. In fact, they released a statement saying that the US economy is now in a recession. Say what? Didn’t the whole planet know that the US (and maybe even the world) economy was declining? It’s odd how things work. Is this what we call behavioural finance, when trades are done based on psychology instead of fundamentals? It’s difficult to understand exactly what happened on Monday as the market crashed but today there was a better result with markets rising by between 3-4%.

There was not much news in the statement except the belief that the recession actually started in December 2007, almost one year ago. Now the real question comes up, when will this recession end? Historically speaking, recessions usually end very little time after the official confirmation that it started so we might expect the worse to be over.

Clearly, the economy will have a tough time recovering because of the credit conditions for consumers as well as housing prices. Both have not yet shown much improvement and this will cause great problems for the economy. Think about the big 3 automobile producers. Imagine this, sales are down 37% in the past month… 37%!!! How in the world is any company, even if well managed (and believe me, I’m not saying they are) supposed to survive an extended period like this?

Even smaller retail numbers look very bleak. Numbers from black Friday in the US seem to be coming in below targets and expectations which confirms once more that this recession will not end quickly but rather very slowly with many many more weeks like the past two. Is it the end of buy and hold investing like some investors are saying? I don’t think so, but we all need to be very patient when investing. I think we need to invest with a multi-year time horizon or else become some type of a day trader, the middle seems to be least for now.

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Keep in mind it’s not just the US automakers suffering. Autoblog posted the sales reports for all manufacturers, and it looks like EVERYONE is suffering big time. Ford is down 30%, but Honda is down 30.6% and Toyota is down 33.8%! And note that MINI is only up 43% because this time last year they couldn’t keep up with demand so the 2007 numbers are artificially low.

Yes this recession is different. First you see people shouting in glee that yes we are in a recession. Then consider the political infighting that we see daily. This infighting causes all parties to give money to whomever in hopes of getting votes during the next election cycle.

Our leaders are not putting our nation’s best interest first. They are selfish imbeciles that need to grow up a play with each other’s toys.

Yes it is true that we see a recession about every three years, and when we do they usually last about 8.5 months. This time politics will bring to the table spending and their denial of the situation won’t get us out of this mess.