Economy Is in Bad Shape, But Have We Hit Bottom Yet?

An analysis predicts no growth through the first quarter of 2009, but the market could rebound quickly.

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Have we hit bottom yet?

Yes, unemployment is rising and, yes, we have tough times ahead. But if you're like me, you keep asking yourself, "Have we hit bottom yet?" I was hoping we had before the recent series of fire-sale buyouts and failures of major banks, brokerage houses, and insurance companies. Clearly I was being too Pollyanna-ish.

At this point with job losses spiking, we know the worst for the economy is yet to come. Ours is a consumer-based economy, and obviously Americans won't be consuming at record levels anytime soon.

But how long will it last and how hard will we be hit?

In a fascinating review of current and past economic low points produced by investment firm Goldman Sachs for its institutional clients, analysts predict there will be no growth in this quarter or the first quarter of next year. But comparing this financial trough with others throughout recent American history, these analysts hope the market will bottom out later this year and start to pick up next year, six months ahead of an economic rebound.

Certainly investors should not rely on this information. I write this merely as a vehicle to remind everyone there will be a bottom to this recession and things will turn around at some point. It's hard to hold on to that thought in times like these.

Analysts go on to say the path to the trough varies by cycle. In 1957, 1987, and 1990, there were sharp three-month corrective troughs. But the 1968, 1973, 1980, and 2000 declines lasted more than 18 months. I personally thought the market had gone mad on the upside last year at this time when the Dow Jones Industrial Average rose above 14,000.

Another thing to consider: During the past half-century, bear markets have dropped on average by 32 percent, with 10 percent occurring in the final month. Let's hope that month is upon us or nearby. The analysts also note that market rebounds are sharp and quick, and they average 15 percent in the three months following the trough.

If you've lost your job, your house, or a lot of money in the market, I feel your pain. I've experienced two of those three debacles in earlier financial troughs. I understand your situation could be unbearable.

Just please remember: If history is any guide, this too shall pass.