US Real GDP Regression Analysis

Before we get too depressed about the future, a reader reminds of where we have come from and of past difficulties.

Reader Submits:

In the chart of the US Real GDP which covers the Great Depression period 1930-1939 we had 4yrs (1930-1933) of sub-zero growth but then swung to 4yrs of strong growth (1935-1937). I believe that this history is a useful guide to the resilience of the American economy in response to highly negative financial events of our own creation.

How this correlates to the market can be seen in the chart of the Dow Jones chart below spanning 1928-1935.(The BLACK ARROW represents the inauguration of FDR)

We do fix the problems and we do recover. Those who buy in the current market and can hold till recovery will most likely do quite well even without timing the bottom.

Lower Prices = Less Risk. In my opinion this is a time to be very bullish!

Personally, I think we have another leg down. I do not see a housing rebound in 2009 at all and until that begins to straighten out, I think we meander with risk to the downside. The reader does have a good point in those calling for demise of the US are wrong, period. We have faced worse time than this (it was worse when Reagan took office, 10% unemployment, 12.5 inflation, double digit interest rates) and come through just fine.

I still say avoid financials like the plague as gov’t bailouts come with a very steep price (massive shareholder dilution) and the future for many is very cloudy at best. If they do not know how to value what they hold, how can an investor.

Those looking 10 years down the road will look back on current conditions very favorably one day.

Disclosure (“none” means no position):Long USA
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