Posted At : March 17, 2009 10:50 AM
I get a lot of comments for not being more “positive”, even though my forecasts have been extremely good for quite some time. So, to break things up, here’s a little quiz.
What year is it?
- Unemployment rate has gained 3 full % points over the past year, and is headed higher.
- High oil prices have driven the auto industry into bankruptcy and they need the government to bail them out.
- The housing market has crashed; new home building is almost nonexistent, nobody can sell their homes and no one is buying.
- State and city governments are on the verge of bankruptcy.
- The Stock market is down dramatically, wiping out nearly 13 years of gains.
- And we have a new President, talented but maybe lacking some experience in the world, thrown into uncharted waters.
Sounds terrible and the future has to be bleak, why would anyone want to invest? So, what year do you thing we are talking about? No, 2009? NO. 1982! YES, all of the above were symptoms of 1982!!
So what was happening in 1982?
• Unemployment was heading higher, eventually hitting almost 11% by the end of 1982, with over 10 million unemployed.
• High energy prices in the late 1970’s had crippled new car sales. Chrysler almost went bankrupt but the government made a loan and took some warrants.
• Mortgage rates were double digit, no one could afford to move or buy a new home, because of the high interest rates. If your current mortgage was at 6% or 7%, you simply could not afford to move, when the new mortgage would be 12%, 14%, etc.
• In the summer of 1982, the Dow was trading at the same level as 18 years earlier…1964.
• And the country had a new President, Ronald Reagan, popular, but not considered to have lots of experience.
So what happened to the market in this time of history?
- The government got paid back over the next several years from Chrysler, and actually made a profit. If you had bought Chrysler stock at the time of the bailout at $2, you could have sold it 8 years later at $52.
- The stock market soared: from its summer low, both the NASDAQ and the Russell 2000 gained over 100% within the following 10 months! The S&P 500 gained 70%.
Two important lessons;
First: The market is always looking forward to what is going to happen, not what is happening. So mentally always be prepared for a change.
Second: Majority of investors missed the rally. Investor’s were piling out of equity funds, instead of buying.
So YES, there is a precedent to where we are and YES we will come out of this. We are not through this my any means, and you need to be proactive with your portfolio. Not opening your statements and “hoping” the market comes back is not an investment strategy. There are many investments doing well in this market. If you are not, you should get a second opinion.?
If I can help, I will. Let me know if you would like to have a review or 2nd opinion. It’s free. Many people have asked me for that recently. I’ll tell you what I like, what I don’t like, where you’re going right and where you’re going wrong. You may not like what I say, but I will be really honest with you.
Regards – Keith Springer