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Monday, March 24, 2008

Major Newspapers Publish Articles About Possible Depression

One of the best "timing indicators" that we love to point to years later is how wrong the major newspapers are at major market bottoms and tops. It makes sense because newspapers report THE NEWS not "THE FUTURE."

When everyone was getting rich on company stock options and quitting jobs to be day traders when the market was at a peak in March 2000, the newspapers were full of success stories about this. Likewise, the papers were full of how much money people were making in real estate a couple of years ago before the bottom fell out for many markets around the country.

So, it should be no surprise to read today that people are worried that the bad times will turn into a depression.

Here are three bearish articles that "ring the bell" for those who can hear it.

March 23, 2008 New York Times: Depression, You Say? Check Those Safety Nets Excerpts:
  • "Some innocent bystanders might be forgiven for wondering why that last word — “depression” — has started popping up. Is it possible our economy could speed past a recession into a full-blown depression like that of the 1930s, when American unemployment reached 25 percent?"
    and
    "Even if consumer confidence hit rock bottom, that most likely would not be enough, by itself, to cause a depression. For things to become really dire, the nation’s financial institutions would have to fail at the same time that unemployment began significantly rising. Only if banks suddenly closed, or it became impossible for companies to access short-term lines of credit, would things begin spiraling out of control."
    and
    "Some economists and financiers say it’s likely that the current recession will extend for at least a year. Others think the American economy will suffer from an extended malaise as Japan did in the 1990s."
    and
    "But whatever name economists give the current downturn, we are unlikely to see the bread lines, shantytowns and dust bowl of the Great Depression. More likely, these economists say, would be a sudden increase in the number of people selling belongings on eBay."

March 22, 2008 San Jose Mercury News:
The Great Depression couldn't happen again, could it?

  • PARALLELS BETWEEN GREAT DEPRESSION OF 1930S AND TODAY ARE MANY, BUT MUCH HAS CHANGED SINCE THEN; EXPERTS SUGGEST IF CATASTROPHE IS IN OUR FUTURE, IT WOULD BE MUCH DIFFERENT

The above is a reprint of the following Michael A. Hiltzik article

March 20, 2008 Los Angeles Times:
A new Great Depression? It's different this time

  • "On the surface, there are disquieting parallels between economic conditions in the early 1930s and those of today. There is the popping of enormous asset bubbles -- stocks then, housing now."
    and
    ""I've been asked many times whether we will have another Great Depression," said David M. Kennedy, a Stanford University history professor and the author of "Freedom From Fear," a Pulitzer Prize-winning history of the Depression and World War II. "My standard answer is that we won't have that one again -- I'd be surprised to have one of that seriousness and duration. But that doesn't mean we wouldn't have a catastrophe we haven't seen before."
    and
    "New Deal programs aimed at staving off a wave of home foreclosures may be especially relevant today. Among the most important was the Home Owners Loan Corp., or HOLC, which is one of several models for homeowner relief being considered by Congress.
    .
    HOLC took over 1 million mortgages in default starting in 1933, worked to keep the owners in their homes and made new loans to strapped mortgage holders. When the agency was finally liquidated in 1951, it even returned a small profit to the U.S. Treasury.
    .
    The Fed's recent actions were "a temporary palliative" to the fundamental problem in the economy, which is the rapid fall in home prices and its ripple effect on mortgage bonds and other securities, said Barry Eichengreen, a professor of economics and political science at UC Berkeley. "You have to reorganize the system, but the discussion about that has only begun."

I kept my copy of the San Jose Mercury News business section back to the 1980's. The January 1, 1991 edition talks about how many banks have failed. That was the start of a great bull market that peaked in March 2000.

The good news for us contrarians is all this fear is good news.

For a comparison, click to view the attached PDF file for when the markets were peaking at all time highs in October 2007. "Everyone" was bullish so my indicators said "take profits."

Things are quite different now. The six sentiment indicators in my newsletter (I added a new one since last October) are saying quite a different story today.

If you want to know what I have been buying in this period of weakness with my profit taking dollars from selling when the markets were higher, Subscribe to Kirk's Investment Newsletter TODAY and get the March 2008 issue FOR FREE!

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