Last weekend a friend was telling me over dinner that there was no recession. He pointed to the fact that there was construction going on all around his well appointed neighborhood.
In fact, he contended, the (non-existent) recession was probably the result of overzealous media types hyping the smidgen of bad news to increase their ratings approval. My other friend concurred. Both of their wives stared at them in disbelief - raising their skeptical eyebrows silently.
I offered that the recession was in fact a reality and not a phantom creature lurking in the loch. Alan Greenspan, the former head of the Federal Reserve began calling this downturn the worst financial crisis since the crash of ’29; that was uttered when Lehman Brothers still had legs.
Depression era historian and Greenspan replacement, Ben Bernanke, had a more positive outlook. “Recently, we have seen tentative signs that the sharp decline in economic activity may be slowing.”
The question wasn’t if the recession was real or not, rather, when is it going to end. Is the recent bear-market rally a shape of things to come? Or, as history notes, is the recent run just a portent of another tailspin? To quote one recent article…I think the current rally is guilty until proven innocent.
There have been several bear-rallies that preceded tailspins in the past. There were several in the recession of 1957-58, a couple in 1973, and one way back in 1930. All three recessions imbued a sense of optimism before further depleting portfolios.
On August 30, 1929, the Dow Jones Industrial Average peaked at 380.33. On October 24, 1929, Wall Street crashed – sending the global economy into a depression. Nine months later economic indicators predicted further declines. The stock markets on the other hand, were indicating a return to prosperity.
In June 1930, U.S. President, Herbert Hoover, wisely intoned, “Gentleman, you have come 60 days too late. The depression is over.” The markets continued to tumble, bottomed out in July 1932; a full 2-years after Hoover declared mission accomplished.
On October 12 2007, the Dow peaked at 14,093.10. During the summer of 2008, the markets were thriving, despite economic warnings signs. In mid-September, the markets crashed from more than 11,400 points on September 12, to around 8,400 on October 24.
Since then, the Dow has enjoyed a number of short lived rallies. All of which were erased when the Dow hit 6,600 points in early March. The Dow is currently hovering around 8,300; fueling optimism that the markets have bottomed.
But have they? Should penny stock investors that have been waiting on the sidelines jump back in for the rebound?
One bullish investment advisor said, “The markets, as leading indicators, are telling us that the worst has passed.” Adding that there will likely be another pullback, but it will not be a crash or hit new lows.
The Economic Cycle Research Institute predicted the recession would end before the summer is out. Too far away? The chief investment strategist for Charles Schwab told Good Morning America this week that the recession is already over.
“I think it probably ended in April,” she said. Noting that the leading economic indicators show the economy has bottomed out and is beginning to turn.
Maybe.
Initial claims for state jobless benefits increased 32,000 to 637,000 in the week ended May 9 the Labor Department said, and the total number of unemployed drawing jobless benefits also climbed, to a record 6.56 million.
The continued weakness in the job market, which is closely linked to spending, has left some market veterans skeptical of the stock market and the recent consensus that the U.S. economy is due for a rebound soon.
Nouriel Roubini, a professor of economics at New York University, who became famous for predicting the current economic crisis said recently, “In the last two years, the stock market has predicted six out of the last zero economic recoveries – that is, six bear market rallies that eventually fizzled and led to new lows.”
What’s a penny stock investor to do?
Fixed-income guru Bill Gross believes investors are far too optimistic about the U.S. economy’s near-term prospects. “Do not be deceived by the euphoric sightings of ‘green shoots’ and the claims for new bull markets…” he said. “Stable and secure income is still the order of the day.”
But, by the very nature that you’re a penny stock investor means you’re more than just a little optimistic about the future of the markets. After all, investing means you believe that the penny stock companies you are interested in will, at some point, succeed, prosper and reward your portfolio.
Have the markets bottomed? Only Sylvia Browne knows. And she’s not telling. If we look at investor optimism, the recent rally of U.S stocks suggest an economic rebound is nigh.
If you've been too scared of a market drop to include penny stock companies in your portfolio, now's a good time to think about changing that. The current rally doesn’t mean the window of opportunity on penny stocks is closed. It’s still wide open.
