Every major American newspaper and business magazine I saw last month carried at least one major article reporting that the U.S. economy was in a freefall with no end in sight. The worst might have been the last issue of “Business Week,” with a front cover story about the recession. What if the newspapers and magazines are wrong about the economy?
Most consumer sentiment polls now tell us that American consumers are more pessimistic about the economy today than at any other time in the past decade. What if consumers are wrong?
Stock market advisors and economist are coming out of the woodwork and making forecasts that the economy will get much worse in 2008. What if they are wrong?
After all, were they not all wrong when the economy was booming in 2005 and most thought that U.S. property prices could only go higher? I didn’t see any analysts or economists tell consumers not to borrow money to buy more houses (except for myself) in 2005 when they should have.
In 2007, I predicted that the U.S. would be in a recession in the first quarter of 2008. In an article I wrote in PROFIT CONFIDENTIAL on March 6 of this year, I predicted that the U.S. government would officially recognize that the U.S. is in a recession on May 29, 2008, as that is when I expected the GDP final numbers to be out.
The problem with human behavior as we know it is that humans are slow to react and, as a group, they are usually wrong in their opinions. As the media jumped on the recession bandwagon early this year, consumers and investors started to take note.
I’ve never seen a recession as well published and expected as this one. The most difficult recessions in history (and the Great Depression) occurred when very few people expected them — they kind of sneak up on you.
With the amount of damage control Bernanke and the Fed are doing, I don’t see this recession as being a severe one. Hopefully, it will only be a bump in the road. (In fact, the worst may be over.)
Why do I say this? Principally, because the stock market looks like it has bottomed out. We have very few stocks making new 52- week lows; we have U.S. corporations sitting with plenty of cash.
If we had a situation where the stock market was making new lows and corporations were out of cash, then I’d say that deep problems lie ahead, but we have the opposite today. It is the American consumer that is tapped out, not corporations. But the Fed is coming to rescue of those consumers.
Yes, I’m still of the opinion that we are in a recession. But I’m also in that very small club that believes that Bernanke has done a masterful job at saving the economy and that better times, not worse times, lie ahead in 2008 for the economy. And that’s what the action in the stock market is telling me, too.