Tuesday, December 2, 2008

NBER Admits New York Investing Was Right

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Yesterday, the NBER (National Bureau of Economic Research) declared the U.S. is in a recession and the peak of the last expansion was in December 2007. It was at the December 2007 meeting that the New York Investing meetup predicted a recession in the U.S. Many times after that, it was stated in various meetings that it was our belief that a U.S. recession began at the end of 2007. The NBER has now corroborated that New York Investing's views on the economy were not only correct, but one year ahead of the government's.

The value of truthful and timely economic analysis is starkly highlighted by the difference in stock market values from the time that New York Investing said recession and when the NBER did so. On December 12, 2007, the date of the New York Investing meeting when recession was predicted, the S&P 500 closed at 1487. Yesterday, when the NBER made its announcement, the S&P closed at 816. If you had gotten out of the market when you heard the news from New York Investing, you would have saved yourself a 45% loss on your portfolio.

Yesterday was of course a horrendous day in the market, even though any rational person with an IQ above room temperature has known for some time that the U.S. economy is in recession. According to news reports, even many members of the NBER thought so for awhile, but for some reason they couldn't seem to reach a consensus until after the election was over. The fact that the market was surprised by this obvious news is truly amazing and indicates the level of economic fantasy that is still built into stock prices. The Dow fell 680 points or 7.7%, the S&P 500, 80 points or 8.9%, and the Nasdaq, 138 points or 9.0%. The small caps in the Russell 2000 were truly crushed with the index experiencing a 56 point or 11.9% drop on the day.

The average post-War recession has lasted 10 months. This one has already lasted longer and in five more months will break the post-1945 record of the very deep 1973-75 and 1981-82 U.S. recessions. As of now, it is inevitable that this will take place. The government may try to manipulate the figures even more than usual so it won't look like this is happening (it's a lot easier to change the reporting of what is going on in the economy, than the economy itself), but that won't change the underlying reality. The current recession indeed has little in common with the recessions in the post-War era, it is more similar to those in the pre-War era, particular those that took place during the Great Depression of the 1930s.

NEXT: Bailout Costs: $8.5 Trillion so far ... and Counting

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:


Something is always going on under the table.