Don't fret - Good times are a coming!

We know this has been a tough year for most. The economy seemed to continuously keep dropping through the year as more and more bad news kept being revealed about banks and the financial industry. Apparently now, after an up to 50% drop in the DJIA, it appears and most analysts agree that we are in the midst of a bottoming out process in the stock market. Being that the economy follows the stock market by about six months as we already discussed in several previous posts, the economy still has a way to go.

So, the good news is the stock market is bottoming out so most investors won't lose much more money than they already have, the bad news is that the economy has yet to see capitulation which means the worst drop the economy faces is yet to come. So as you see these layoffs and firings and downsizing at many companies and firms to ward off hard economic times you will see these become more popular as we head into January, February and March. The economy will probably not turn for the better until closer to June of 2009. As you can see by searching various options on numerous stocks most are pricing in a rebound to start between April and June of 2009.

The options across the board become more expensive as you go out from April to June, not just because of the additional time involved, but because of the widespread belief that this market is way far oversold and is due for a rebound. Now this is where it gets tricky - some analysts say it will be a long time involved in this rebound and that the gains in the coming rebound will not be anything like the gains we've experienced in the past 10 year bull market. Others are more the school of thought that what goes down must come back up with the same inertia or force. What this means is that they believe the stock market operates just like any piece of matter in respect of physics.

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The stock market obviously capitulated between October and November of 2008. If you can't see that you have to be blind as the stock market dropped another 25 to 30% just in those months alone from where it was originally. So if you believe in their philosophy it took a little over a year or so to get down here and when the bottoming process finally ends, regardless of whether or not it is a long convoluted head and shoulders pattern or not, it will take equally as long to get back to the peak of over 14,000 in the Dow that was reached in October of 2007.

I am not a psychic and cannot look into the future so I can't tell you which one of these two schools of thought is correct. But if you were to look at the past performance of the stock market since 1928 or even earlier there is a fine medium, which could be called a linear regression line, for which the market always tends to return to overtime. What this means is the market is cyclical and you will have bull markets and bear markets but over time you will be able to draw a linear regression line which the market always tends to return back to it one point time or another.

So taking this into account you would probably be more correct by taking the in between approach of the two main philosophies described above. And by doing that you find a fine medium of where maybe it takes three years to return to 14,000 in the DJIA (Dow Jones Industrial Average) and at a more steady pace. Regardless of how you look at it in what philosophy you follow almost every analyst is an agreement that the next bull market will start in the latter part of next year (2009).

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So even though we are in some fairly tough times and for some very tough and unfortunate times we do have another bull market in another positive and great economy to look for to. When it actually starts is debatable but the fact that it must start is not. Keep in mind the economy, whether you look at the world on a more global scale or if you just look at the American economy by itself, has weathered far worse than we are seeing today. There were the great railroad bankruptcy's of the previous century, the Great Depression of 1929, two world wars, the Vietnam War, the great Holocaust, etc.

Our economy will get better just hang in there before you know it good times were better times will be here. One thing to keep in mind is what got us here in this whole in the was our dependence on debt. We have become a society of have it now. We can't sit and save and wait until we can actually afford to buy something out right. The majority of people that were hurt the most by this recent economic downturn did not have enough savings. Yes, there are people who are just broadsided by firings, layoffs, bankruptcies, health crises, you name it, but as a whole we all need to take better control of our spending habits and finances.

It would behoove everyone to make a New Year's resolution of getting their finances under control and putting plans in place to make it so you wil be better off if this were to happen again. One great step everyone can take is to get rid of all credit cards and store cards. Just keep one credit card in case of emergencies or for car rentals because they require it - but that is it. Store cards serve one purpose and one purpose only has to get you to spend more money than the originally planned to.

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Instead of buying things on credit pay cash it will make you think hard and long about the purchases you make as you watch your cash quickly deplete itself. You'll think twice before you make a purchase and you will see many purchases are not really necessary at all. Then the next step is to get you out of debt and get you to start saving your money and putting it to where it makes more money like investing it wisely. A great book and reference here would be The greatest salesman in the world written by Og Mandino.

So Merry Christmas and happy holidays. There may be some tougher times ahead, but that won't last long and they will soon be followed by better times. May you have a prosperous 2009 and if you've had a prosperous 2008 please take the time to help out those that are less fortunate.

 

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