Don’t Be Fooled by What They Are Telling You

Courtesy of the National Bureau of Economic Research (NBER),on Monday we had the first “official” notice that the U.S. was in a recession. In a statement Monday, December 1, 2008, the NBER said, “The committee determined that the decline in the economic activity in 2008 met the standard for a recession.” Hence, one year after the recession started, we have some formal word that we are in a recession.

Now, here’s what I said back on November 13, 2006, one year before the recession started:

“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector that are being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.”

Again, in the summer of 2007, I warned:

“Starting two years ago I was writing how the housing boom would go bust and cause the U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing prices to continue declining, soft auto sales, soft consumer spending, and a lower stock market.”

Predicting the economic future is crucial for investors, so they can adjust their portfolios to either take advantage of economic expansion or to protect their portfolios in times of coming economic contraction. This is how great fortunes are made — the old buying low and selling high adage. And that brings me to the present.

I’ve been reading reports from analysts about the bottom of the real estate market “being in” and the stock market having bottomed as well. This is rubbish. Don’t be fooled by what they are telling you.

A decade of economic expansion does not come to a halt after one year of economic contraction. There is more pain ahead for the housing market, as the inventory of unsold homes is just too overwhelming for the market to absorb. Financing conditions remain very difficult; consumer confidence in the housing sector has been crushed.

As for the stock market, my statistics show that there is plenty of stock to still come out — there is a greater inventory of stock to be sold than buyers willing to buy it. Any stock market rallies we see, in my opinion, are classical bear market traps. General business conditions in the U.S. are pathetic and continue to erode daily. Tread with caution.