2008 Economic Forecast: American Recession Already Here
Wednesday, January 9th, 2008
By Michael Lombardi, MBA for Profit Confidential
Yesterday’s drop of 238.42 points by the Dow Jones Industrial Average was a clear message: The stock market sees trouble ahead for the economy. The Dow is now down almost five percent so far this year and we are only five trading days into the year. As for the NASDAQ, it has been down eight trading days in a row!
In early 2007, I predicted that the U.S. economy would be in a recession by the first quarter of 2008. I still have that view… and I think that’s where we are right now. The massive amounts of liquidity that got the stock market up for most of 2007 are gone. That liquidity, courtesy of the credit crunch, is now dissipating. All of 2007′s stock market gains by the Dow have now been wiped out.
The signals were all out for investors to see in 2006 and 2007 following the burst real estate bubble. Thanks to Alan Greenspan for bringing interest rates to a 46-year low. American consumers spent like there was no tomorrow and now the American economy will pay the price for the good times gone.
Job growth in December was very disappointing. The Institute for Supply Management reports that the U.S. manufacturing sector contracted in December. Housing sales, forget it. According to the Dow Jones U.S. Construction Index, the chart says we are headed back to 2003-2004 house price levels! Car sales in the U.S., despite all the incentives offered by manufacturers, were at their lowest level in 2007 in almost 10 years.
Technically, the government cannot call a recession until we see two consecutive declining quarters of Gross Domestic Product (GDP). But that’s only a statistic that tells you where you are when it is too late. The business climate out there right now, according to my contacts, is very difficult… and I expect it will get worse.
What’s an investor to do? Stay away from stocks that suffer during recessionary times. Stick with stocks that go up when interest rates go down because the Fed will have to decrease interest rates plenty to jump-start this economy.
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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
