It’s been a bear – but the economy is looking up

In February, I predicted that once we got to a point where President Obama could speak on television concerning the economy — and the market would go sideways or up — it would be a sign that the market had hit rock bottom. Once you hit a certain point you run out of sellers, and there is nothing left to bring the market down any further.

After witnessing a politically perpetuated 25 percent drop in the Dow Industrials this year alone, it appears we may have hit the market low on March 9.
The market was so low at that point — down 54 percent from its peak — it appeared as though everything negative had been factored in, maybe several times over. With confidence completely destroyed, high-yield bond default rates are projected at double what they were during the great depression. Another metric shows consumer spending at the same level it would be if unemployment were at 30 percent.

For the record, it’s currently 8.5 percent.

Imagine you’ve been asleep the past 18 months and just woke up. Looking forward, not backward, things actually look pretty promising.
• Six of our eight “bull watch” indicators support the case for a new bull market.
• Six of the 10 leading economic indicators were up in February.
• Housing is more affordable and mortgage rates are substantially lower than they’ve been in recent years.
• Energy is more affordable for consumers and businesses.
• Credit is loosening and interest rates are extremely low.
• There will be a massive global government stimulus forthcoming.
• Abundant amounts of investor cash is on the sidelines.
• This has been called the sale of the century. In inflation-adjusted terms, the Dow Industrials are at that same level they were 43 years ago. In 1966 there were no PCs or the Internet, and our workforce was half the size of what it is today.
• Four-fifths of top economists in the latest Wall Street Journal survey say now is a good time to buy stocks.
• Investor sentiment has reached the negative extremes and has started to reverse.

Going Forward
Yes, things are looking up. The question now is what can we expect, and where do we go from here?

In our conservative portfolios, we are holding a significant amount of cash equivalents and are waiting for tape confirmation that this market has turned before becoming fully invested. In our growth portfolios, we are fully invested. We are invested in areas of the market that have historically performed the best after a bear market. After the 2000-2002 bear market, we were able to almost double the return of the market averages by positioning our portfolios in the best places.

As I’ve mentioned before, this is the 34th bear market in the past 100 years. The future always looks bleak when the bear market is at its worst. People become irrationally pessimistic. That is when the naysayers have their day of fame — the media loves them and they get lauded with press. They always expect things to get worse and they always attract a lot of followers. And they have always been wrong — not wrong once or twice, but the past 34 times.

Our economic system is resilient. Our markets and our economy have always recovered from these difficult times. We’ve made it through recessions, world wars, a civil war and a depression. I believe in the free market system and that our market and economy will recover again — in spite of our politicians.

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