Another Great Depression never happened

Just a quick little entry. A couple weeks ago I did a blog post claiming that we would NOT have another great depression in the United states. Now it is very obvious that the economy will NOT fall into a great depression. The economy is turning up in several leading indicators. The housing market is picking up, and the stock market is going up almost daily.

Will another great depression happen in the future? Sure it is possible, but I truly believe that we learned from the first one. The government is better prepared to fight off a possible depression, and after this major recession they will be even more prepared. You have to understand that during the Great Depression, there was no federal reserve monetary policy available. They could not simple cut interest rates to encourage lending by banks.

A great depression in the future is possible, though not likely. We came pretty close this year, but the efforts by the federal reserve and government (through fiscal policy) fought it off. Perhaps if this was 1920, we would have fallen into a deep depression, but the tools we have now prevented that.

How the Toxic Asset Plan Helps Me

Well, the new plan is out. The goverment will buy up toxic assets from troubled banks. After doing this they will sell them at discounted prices in an auction format. How will this toxic asset plan help me and you? It's quite simple.

The new plan will be put into motion with tax payers dollars, so all Americans will be paying for the solution (However the tax might not be as big as we all think, since these bad assets still have good value). You won't see any immediate effects, but it certainly will help the banks. I know, I know. This isn't what you want to hear. However, the way I see it is that it really is the only solution. We will all see results in the future. It will be easier to obtain loans. We will be able to get mortgages at lower rates. We will be able to refinance our mortgages at lower rates. Entrepreneurs will find it easier to obtain business loans at low interest rates.

With the increase in loans being made, the country becomes more productive. The Stock market will increase, there will be more jobs, and real estate values will start to inch their ways back up.

The negatives of this plan?
- Increase in taxes (pehaps only a small amount).
- Increase in inflation as the economy begins to pick up.

All in all, I feel this is a good move on the part of the government that should and will work.

When Fear Reaches it's Highest Point, Invest

I truly believe that when the nation is the most fearful, is when the economy (particularly the stock market) will begin to turn around. When everyone feels one way about the economy, you should try and feel the opposite of the trend.

The latest poll shows that 45% of people believe that the economy will fall into a depression. Come on. Do we still believe that this economy that has seen the DOW increase 6 of the past 8 days is going to fall into a depression? This same economy that has seen new building of homes increase 22% in the last month. People on Talkgold.com are all saying how terrible they think the economy will continue to be for years to come (Thoughts on Economy). We aren't falling into a depression. The economy is just about to start a recovery if it hasn't already.

If you recall, right before the housing collapse, the majority of the experts were saying that the housing boom will continue. People were still buying houses, stock etc. Employers were hiring like crazy to expand their businesses. Then BOOM! It all changed.

The same thing will happen with the turn around this current economic situation. It will turn around while experts and the general consensus of the economy is still negative. You watch and see.

Just a little bit of my input.

What The Unemployment Rate Means for the Stock Market: Nothing

Well the unemployment rate in the United States has been released. It is currently at 8.1% which is the highest since 1983. What exactly does this mean for the future of the stock market? Absolutely nothing. (To see some more specific unemployment stats, check out http://www.talkgold.com/forum/r251143-.html)

Unemployment is considered a "lagging indicator" which means it follows the economic trends. If the economy is doing bad, unemployment will usually go down. It is an indicator of the economy that lags behind. So in reality, the unemployment rate could be going up as the economy becomes bullish.

The latest news that the unemployment rate is over 8% nationwide should have no influence whatsoever on whether you buy or sell your stocks. In my next entry I will discuss leading and lagging indicators, to see if we can predict when the economy is about to turn up.

My 2009 DOW Jones Prediction

Since the DOW has been continuously falling for the past year, I have decided to make my predictions on what will happen to the dow for the rest of this year (2009). Today is March 3rd and as I'm writing this post, the DOW is at exactly $6,728.33. Here are my predictions.

March 31, 2009 - DOW will be at $6943
May 1, 2009 - DOW will be at $7404
July 15, 2009 - DOW will be at $7709
August 15, 2009 - DOW will be at $8330
March 3, 2010 (one year from now) - DOW will be at $9438

You can see more predictions over at Talkgold.com's Dow Prediction thread.

Let's hear everyone elses predictions, and we will revisit this post again when these dates come.