Guzzo the Contrarian

If there’s one thing that my frequent (or infrequent) readers should know about me, it’s that I don’t like blindly following the herd. By posting this news, I’m not reporting anything that can’t be found on the other 25 million financial sites out there. But, it’s now official, we’re in a recession.

According to the pseudo-governmental organization who officiates these things, National Bureau of Economic Research (NBER):

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

However, “official” word of recession cements the point I tried to get across to my readers when I first started Guzzo the Contrarian, that the economy was headed for a significant downturn based upon the inverted yield curve theory. A recession officially beginning in December 2007 also proves this theory an accurate forecasting tool “once again”.

I can’t tell you how many friends and associates I’ve told (unconvincingly) that the recession began at the end of 2007. I also can’t tell you how many financial pundits, perceived experts, and financial professionals adamantly predicted just the opposite. I also can’t tell you how many people told me that I was crazy, or dismissed my opinion based on a perceived lack of credibility because I’m not a financial professional. But, I didn’t invent this theory, I just recognized it’s value.

So, while I’d like to say that I’m posting this news in order to justify my own independent analyses or to prove my credibility, posting an “I told you so” doesn’t do any good. I’m also not in the business of providing individual investment advice nor am I trying to convince you that I have all of the answers. In all honesty, while I did predict this recession, I didn’t predict that the recession would be this bad. But, that’s all in the past.

I’m actually writing this post to try to make a couple of points.

My first point is:

BELIEVE IN YOURSELF. YOU CAN SUCCESSFULLY MANAGE YOUR OWN FINANCES AND INVESTMENTS BETTER THAN MOST OTHERS CAN MANAGE THEM FOR YOU.

You can do it! It just takes motivation, persistence and patience. To be successful, you’ll have to think outside the box, believe in yourself and your analyses, and be confident with your own decisions. You must persevere in the face of numerous adversity; people telling you that you can’t do it, or trying to convince you that they are more knowledgeable. Always question whose interests are being served when analyzing such advice.

No one is perfect. They’ll be intermittent failures, times when you’re wrong, times when you lose money, and times filled with self-doubt. Don’t let these occasional failures discourage you from achieving overall financial success.

I hope my successful experiences encourage you to take charge of your financial situation and lead you on your own quest to conquer the markets. Believe in yourself. Live, learn and listen and you’ll be successful.

My second point is:

OFFICIAL RECOGNITION OF A RECESSION IS THE FIRST STEP IN REVERSAL OF A RECESSION.

It’s good news to finally read of an officially recognized recession.

While it’s often been said that earnings move the markets, it’s actually investors’ behavior towards those earnings that move the markets.

Unknowns tend to cause investor anxiety and now that the recession has become officially recognized, that “unknown” has been removed from the equation. Acceptance of a recession often signifies a psychological stage where investors start looking towards resolution.

According to William Hester, CFA, of Hussman Funds:

The typical recession-induced bear market goes through three stages. The first stage is where stock prices grind lower as the economic data begins to suggest a developing recession. The depth of the declines and the volatility increase as more investors begin to price in the probability of a recession. This recognition comes slowly. On average, the first 100 trading days of recession-induced bear markets contain only a quarter of the bear market losses and have lower volatility compared with the full downturn.

The second stage is where the majority of investors recognize that the economy is in recession. This period usually coincides with deep and abrupt declines, with very high volatility.

The final stage is a work-out period, where stock investors struggle to determine the depth and duration of the recession. It’s a period that’s been marked by both strong rallies and continued declines, partly determined by beginning valuation. Rallies often retrace. And the early stages of this work-out period almost always contain above-average volatility. But once a recession has been recognized, and valuations become reasonable, the prospects for longer term returns typically improve.

According to today’s NBER report, we’ve been in a recession for a full year. Not including the Great Depression of the 1930′s, the average duration of time for all recessions thereafter is only 10 months.

While it’s possible that this recession may turn out to be atypical, I’m of the opinion that we are probably in the second to third stage of a typical recession.

I also tend to agree with John Hussman, PhD, that the stock market is not in uncharted territory, and that we should be seeing a turnaround soon.