Friedrich Nietzsche uttered these words over a hundred years ago, but I don't think you can summarize our current economic situation any better.

Over the last few days, I have done several interviews with media outlets. They wanted to know what to make of the lowest consumer confidence reading in history and the ongoing jobless claims being at a record high.

With regard to the consumer confidence reading, it is a contrarian indicator. Consumer confidence hits highs right before the market tops, and it hits lows right before market bottoms. The previous low before this month was set in December of 1974. Those of you that read my articles each week know what happened in December 1974. Employment was at its worst then and we were in a recession. However, the market hit a bottom in December 1974 before bouncing sharply higher over the next six months.

When was Consumer Confidence at its all-time high you ask? How about May 2000. Right as the Tech Bubble was starting to burst, the Consumer Confidence reading was at an all-time high.

Look at this chart from Bespoke Investment Group. The chart only goes out to July 2007, but it makes my point about consumer confidence being a contrarian indicator.

Notice the low in 1992 as we were coming out of a recession and then it rises all the way up to the high in 2000. Then it falls until the beginning of 2003, right before the market took off on a four-year bull run.

Employment is another story. Employment is a lagging indicator. I have said it before, the market turns first, then the economy and then employment. I know for the overall economy and for the individuals, the job losses are not good news. My wife lost her job, but was fortunate enough to find another one. My brother is out of work right now. I just heard from a friend this morning that he is losing his job with Pfizer in a few months.

The job losses are running deep and they are running across all sectors of the economy. As an investor, there is a bit of a silver lining in this employment downturn. The companies that are cutting jobs right now, but then are able to remain in business will come out of this recession leaner and stronger.

I maintain that this is true for corporations, countries and individuals. If you can come through this recession a little bruised, but not broke (financially), you will be positioned to make a lot of money over the next five to ten years. Whether it is investing in stocks, gold or real estate, all assets are set to rise sharply after we get through this recession.

Right now, the big question is when will it end. Personally, I think the stock market has already seen the bottom with the November lows. The economy hasn't bottomed yet, but I think it is close. It will probably bottom in the next six months. Employment will bottom shortly after the economy.

As far as investing in this market, I think there are two ways to play it. You can do what I would call hit-and-run trading (like I teach in the Velocity Strategy) or you invest for the long term (five years down the road). The wrong place to be right now is in the middle, investing for three or four months. The week-to-week volatility is too much for these types of trades.

Good luck and good trading,

Rick

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