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Another Great Depression? Nope

After the worst week in US stock market history, there are numerous people, including some of the media touting this as the next Great Depression. Even before the market dropped 25% this last week, CNN had a viewer poll in which 60% said the US is headed towards another Great Depression. Here are several reason why they are all wrong.

#1 Monetary Policy
The FED has so many tools at their disposal that they did not back in 1929. During the depression instead of trying to ease credit markets the FED instead did the exact opposite, this caused panic which caused a run on the banks, and with the fractional reserve system, banks only keep 10% of their depositers money on hand.

#2 Unemployment rate.
The current unemployment rate is about 6.5%. Back in 1933 the unemployment rate reached 25%. Just as recently as 1980, the unemployment rate was at 11%. Unemployment is the main factor that leads to depression, and we are barely over the average of the last 100 years. Sure unemployment could increase, but it would be amazing if it ever got to even half of the 1933 numbers in terms of percentages.

#3 Stock Market dips are normal.
The average bear market over the last 100 years had stock prices decrease approximately 35% from previous highs. In this downturn the DOW has fallen about 40%, which is in range of the usual bear market pattern.

#4 Fuel Prices
Just as the market begins it’s downturn and the economy enters recession, the price of gas decreases nearly 25% off of highs. The price of oil should continue to go down, and the average American household, as long as they are employed, will have more money this year then they did last to spend and keep the economy chugging along.

#5 Innovation and Technology are Flourishing
America continues to be the nation of innovators. From Google, to Apple, to GE, to wind and solar power, the US is leading on all fronts. Innovation creates jobs, spending, and a stable economy.

Of course everyone needs to make their own decisions, however I am willing to bet some will look back in two to three years and say…. “The DOW was at 8100? Man I wish I bought in back then.” When dividend yields of drug manufacturers such as Bristol Myers Squibb, and Pfizer are at 8%, you know the market is undervalued. Even if we go into one of the worst recessions sicne the Great depression, these companies are still going to be selling prescription drugs. Everyone needs to relax and stop panicking.

The First Step in Surviving the Great Bear Market of 2008

On October 10, 2008 the Dow Jones Industry Average futures were down over 700 points and during mid-morning trading it actually crossed over into positive territory. At the end of the day, the DJIA closed down over 400 points. That is a price swing over 1100 points in a single day. The volatility is absolutely historic. It may be hard to look at the bright side of such a swing, but you have to realize we are experiencing historic events.

So will all of the wild price swings and bank failures, what is the best thing to do in the Great Bear market of 2008?

The first thing to do during a bear market is to have a realistic mindset. Don’t worry what newspapers are printing or what the television anchors are saying on the 6:00pm news. Remember, the media is in the business to sell newspapers and get nightly viewers.

In fact, a wise man once told me what he did during the 1973-1974 bear market. He said he was so worried about his stock portfolio that had only slept 2-3 hours per night for several weeks. This lack of sleep was affecting his health, his marriage and his day job.  In fact, he said he was suffering from “ursaphobia”. The term “ursa” is Latin for bear. The definition of a phobia is “to fear something”. Put them together and you get Ursaphobia – The Fear of the Bear.

After a heated argument regarding their investments with his wife, he said he went for a drive. During his drive he was listening to the news on the radio. The newscaster was talking about the bad economy and the stock market. He said he reached over to turn up the volume on the radio, but the radio knob fell off. Since he couldn’t hear the news he turned off the radio. He said he drove for another ½ hour before returning home.

When he drove into his driveway he said he felt a feeling of peace and calm come over his entire mind and body. After he made up with his wife, he told her about radio experience and the peace he felt. After listening to his story, his wife suggested he stop listening to the radio, reading the newspaper or watching the nightly news for a week and see how he felt.

After a few days he felt great. He said he wasn’t stressed out anymore and this experience taught him how to manager stress for the rest of his life. So when the market goes down, (and it will) he says he keeps in contact with his stockbroker a few times a week and doesn’t watch television or read the financial newspapers as closely as he did in the past.

So rather than focus on a bunch of numbers, charts and quotes, why not focus on the present and the future.

If you are looking for strategies to bear-proof your portfolio, you can download a free 20 page report entitled: Ursaphobia – The Fear of the Bear at http://www.urasphobia.com