Tue, Dec 31, 2013

Great Economic Depression In America

I can tell you a poorly held secret about financial media.

Bad advice sells. Good advice doesn’t.

Consider what we cover here at Contrarian Insights. We cover top contrarian investments. Those like European, coal, and steel stocks.

No one wants to know about them right now. But those are the exact type of investments investors will make fortunes in them.

We don’t write about hot stocks like 3-D printing bubble. It’s looking like it’s about to burst. But that doesn’t stop the financial media feeding investors news about it. That’s what the investing world wants. Even though they will likely lose money from here in 3-D printing stocks.

That’s just how it is. And it’s why there is no shortage of terrible financial advice available to investors. It’s also why, on occasion, we’ll show you how to spot dreadful advice. Doing so well can help you avoid a lot of painful losses and ensure you get into the best investments.

The latest bit of terrible investment advice comes from one of the numerous and consistent calls about the imminence of an Economic Depression.

Everyone can, and many do, point to anything to strike fear into investors. There’s a lot to point toward as well. Government debt levels, expansion of credit, the fact no problems from the last crisis were ever solved (they’ve really only been worsened), and on and on.

It is all factual. But the conclusions drawn from it are often poor investment advice.

In the case of all the negatives out there in the financial world, the problem is they have been used to keep investors from making many investments the last few years. And we’ve been in a bull market in nearly everything.

The latest bit of terrible advice was viewed more than 46,000 times over at Business Insider.

It’s a chart comparing the current stock market rally to that of the rally leading up the Great Depression:

At first glance the chart shows disaster is imminent. A new depression is just months away.

Although it’s impossible to predict the future, especially when it comes to stocks, this chart is absolutely ridiculous for so many reasons.



First, stock market patterns rarely repeat so closely to past history.

Yes, all the investment trends play out in similar fashion. The cycles of stocks and markets are relative similar. Sectors fall in and out of favor. They will continue to do so. But they rarely last the exact same amount of time as the chart implies.

Second, the Great Depression was not caused by the stock market crash.

There are so many other factors that led to the extended economic decline. Just look at the numerous tax changes and government interventions in the economy throughout that period. They had a much bigger impact on retarding economic growth.

Furthermore, at the height of the stock boom in 1929, only 3% of Americans owned stocks. So if they were all wiped out, the damage still would have been very limited.

Third, the economy is actually shaping up to do extremely well in 2015.

Nearly every bit of economic data you see at the Calculated Risk blog (an essential resource for individual investors) shows the economy continues to improve.

Unemployment is clearly on the mend:

Household debt levels have returned to their lowest point since 1980:

As for the housing market, it’s continuing to heal:

And those are just three indicators. There are many, many more.

Don’t get me wrong, the general economy is still in rough shape. But the 200 year trend of positive economic growth is still up.

All of these signals show the economy continuing to heal. As it heals, these positive trends will accelerate. And probably make 2015 the strongest year for economic growth.

Many forecasters have been calling for a depression since 2008. They missed out on making a fortune.

Many of them have been calling for a depression far longer than that. Some since the 70s and 80s.

And they are affecting many investors. Investor sentiment, as tracked by the American Association of Individual Investors (AAII), remains relatively subdued while stocks continue to rise around the world. The survey found 45.5% of investors expect stocks to be higher in the next six months. This is not much higher than the long run average of 39% of investors seeing stocks headed higher.

Eventually they will be right. Broken clock theory applies here. But in the meantime they’re going to miss out on a lot of exceptional, contrarian investment opportunities in the meantime.

The best investment advice you can take is not to listen to them. Let the data be your guide. If you do, you will be well rewarded and a more successful Contrarian Investor.