Stocks Can Rally In A Recession?

Hey all. Just wanted to apologize for the site being down the past couple of days- I’ve been having some technical difficulties. To access my content in case the site goes down again, I recommend subscribing for email notifications on the right sidebar (if you haven’t already). Anyway, back to matters of the economy.

People are just confused by what’s happening now. GDP figures come in relatively strong and corporate earnings are solid. However, unemployment refuses to budge down and housing is stuck in a rut. Are we in a recession or not? Why did stocks explode in October at the same time protests broke out throughout the country? As I’ve said over and over again, throw economic orthodoxy out the door because it just can’t explain this crisis.

First of all, I think people misunderstand what recessions/depressions are. It”s all relative: the lowest point of a recession is more or less equivalent to the highest point of a previous cycle. People get all bent out of shape because they are accustomed to a higher standard of living. But recessions clean out inefficiencies in our system. It is a process we must go through.

The Great Depression saw the end of the farmer, which was bad in the short-run; however, this was necessary for us to become a full-fledged industrialized nation. It’s hard to see now, but our economy is shifting. Different skill sets are needed because of the advancements in technology and the comparative economic advantages of emerging economies like China. David Ricardo was right.

China is doing everything right. They are letting the yuan rise, but slowly. They affect lending practices by changing reserve ratios, not by raising or lowering interest rates. They bought gold and silver when all the “experts” said it was a bubble. Now all those experts are extinct while China is still humming along.

China is going to indirectly bail us out of this recession, at least when it comes to asset prices. From their perspective, America is on sale. Real estate, gold, and stocks are all strong plays here. Even with today’s correction, October was one of the best months for stocks in history. As I said numerous times, stocks are going to rise into this downturn. Learn to think differently. Bulls and bears are both wrong on this one.

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  • Angie

    Hi Moses,
    I’ve been buying stocks and gold at the dips (sub 11000 level).
    Now that the stocks have rallied, but with the news coming out of Greece, would you recommend adding positions when market drops lower or stabilized a bit more? Or is this still a good time to buy in case Greece for real defaults? Also do you see gold going back to low 1600? I bought 2, 3 weeks ago but would like to add more if there’s a good opportunity.

    thanks,
    Angie
    Angie

    • http://www.expectedreturnsblog.com Moses

      Hi Angie,

      I believe all dips are buying opportunities and that the uptrend should resume soon, if it hasn’t already.

      Moses

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