Official “Recognition” of Recession Coming May 29, 2008
Thursday, March 6th, 2008
By Michael Lombardi, MBA for Profit Confidential
The problem: how do we recognize when a recession is happening? You’re in it, but the government does not recognize the fact until dated government figures are released. A recession is defined as two consecutive quarters of declining Gross Domestic Product (GDP).
The U.S. economy grew at a strong 4.9% in the third quarter of 2007, followed by GDP growth of only 0.6% in the fourth quarter, and possible negative GDP growth in the first quarter of 2008. Hence, the government will recognize the U.S. economy as being in a recession at the end of this May. On May 29, to be exact, the official first-quarter GDP numbers will be confirmed by the U.S. Commerce Department.
In a PROFIT CONFIDENTIAL column I wrote on May 14, 2007, entitled, “Can a Recession Really Be Far Away?” I predicted that we would be in a recession by the first quarter of 2008. We are there now. (Late comers like Warren Buffet are only now admitting that we are in a recession.)
But what does a recession really mean for investors and their portfolios? It means a lot of things.
General Motors has reported a 13% decline in February sales. GM stock is near a 10-year low. Is it a bargain? Will it become more of a bargain? My opinion is that yes, GM stock will become more of a bargain. I would not be surprised to see GM stock to eventually trade at its 1974 low near $10.00. And that will be what I call an opportunity.
Construction spending in the U.S. took its biggest plunge in 14 years in January. Does that make construction and homebuilder stocks a bargain? Not quite yet, in my opinion. I see the big homebuilder stocks bouncing up a bit, but I need more confirmation that the worst for housing is behind us before I would buy the builder stocks.
A key indicator, the Institute for Supply Management factory index, dropped to 48.3% in February. A reading below 50 can be interpreted as economic contraction. And the stock market, with all this negative news, is not really taking it on the chin yet. Does the stock market know something we don’t?
Yes, February was the fourth month in a row that stocks fell. We haven’t seen such a losing streak since 2002. But considering the bad news everywhere you look, I would expect the stock market to be taking the “hit” harder. Maybe the market sees more oomph in the Fed interest-rate cuts than the economists.
Would I jump in and buy stocks? No. I continue to see gold stocks as the only group offering value today. But the actions of the stock market over the next few weeks will be very indicative of where we will go for the remainder of 2008. I’ll keep you posted.
Next Post: What a Financial Guru Has to SayPrevious Post: More Hacking of Interest Rates Needed
Tags: GDP, recession, U.S. economy
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
