Market down over 36% from last October, unemployment rising, and uncertainty everywhere we look. You don’t need me to say it, but we are in a “Bear Market”. What about the 700 billion dollar bailout and the .50% rate cut? Wasn’t that supposed to save us? It appears as if nothing is working and the market will continue to spiral down into the abyss. This is another classic sign of a bear market. People simply loose hope and continue to sell everything until there is no one left that wants to sell. I understand these are scary times. I, like everyone else in the market, have lost a lot of money. However, I remain optimistic, and so should you.
The main reason I am so optimistic is that on average the market drops 35% during a recession. As of last week we are down around 36%. We could and probably will drop more, but last week’s action got us closer to the bottom much quicker than I had imagined. You see, I believe the market goes up over time. Unfortunately, the media is doing its best to make us think differently. Markets are also forward looking, and they tend to go up well before the end of the recession. I don’t know when the recession will end, but I do know the market will go up before it is over.
The other reason I am optimistic is because the government is no longer ignoring the problem. The bailout, rate cuts, and insuring money markets amongst other things indicate the government will not let this problem turn into a full-blown depression. However, these remedies take time. Rate cuts take around nine months to have an effect, and the bailout plan will also take time to work. The market is sick, and sometimes the flu lasts longer than we would like. The government and the fed are providing the needed medicine, and it will work. I believe the bailout was necessary and that in the end it will be much less costly than the alternative of doing nothing. This is in stark contrast to the great depression when the fed actually raised rates, the FDIC didn’t exist, and we didn’t have as much practice averting this type of crisis.
The market will turn, and each day it goes down brings us that much closer to the bottom. My advice is to add more money if you can, make sure you’re diversified, and don’t panic. We will make it through.
