To start, and continuing last month’s theme of focusing on facts and seeking the truth, we offer this bit of advice: avoid the noise and nonsense. Our first example…

The average stock portfolio lost around 40% last year. To get back to even this year, you’ll need a gain of around 66%. Lo and behold, the “always invest in stocks” crowd has been chattering away about 1933. Why 1933? Stocks rose 66.9% that year. The lesson “they” draw: you should absolutely hang in there with your stocks. Help could be just around the corner. Make sense? We dug a little deeper to find out.

That 66% gain in 1933 followed four years of losses, from 1929 through 1932. If you started with $100,000 in 1929, you would have ended up 1933 (after that 66.9% gain) with around $49,355. Question: would “they” have told you to stick with your stocks the whole time? Better question: would sticking with your stocks have been great investment advice, or just noise and nonsense?

Maybe a better piece of advice is one we recently came across:there’s no situation so bad you can’t make it worse.

Moving on, this past week we started wondering…

Instead, against all odds and the typical historical patterns, it’s just sinking…and sinking.

So what does this mean? Just this: the weakest kind of market is a severely oversold market that refuses to rally. And that, gentle reader, is what we’ve got now: a severely weakened market.

Why is this important to know? Because there may be some upward movement at some point. But that won’t change the fact that it would be a rally on top of a very weak market. Should you be putting money into it? We’ll share some specific thoughts on that subject in a moment. But before we get to that, a quick update:

The facts (here we go again) are that 1) GDP numbers are routinely revised; 2) 4th Quarter 2008 was expected to be revised down (to about -5.5%). The Times didn’t mention this. If anything, they could have said the revision was steeper than expected, but they didn’t. They used the fact that the number was revised downward as a reason for gloom. And so we wrote their comments off as just more noise and nonsense. The evidence, like much of what the media’s been spitting out these last few weeks, won’t support their argument.

But we decided to take it one step further and look at recent GDP numbers (-0.5% 3rd Qtr 2008, -6.2% 4th Qtr 2008) and compare them with some other tough times. We start with:

Other examples:

In 1953-1954, there was a downturn worse than the one the current President “inherited.” GDP declined by -2.4% in the third quarter of 1953, -6.2% in the fourth quarter, and then by -2.0% in the first quarter of 1954. However, the economy headed back to double- digit growth, expanding by 0.4% in the second quarter of 1954, 4.5% in the third, and 8.2% in the fourth. In the first quarter of 1955, it jumped 12%.

Even more dramatically, in the fourth quarter of 1957, GDP declined by -4.2%, and in the first quarter of 1958, it declined by -10.4%. (Compare this out our -0.5% and -6.2%.) Sure enough, the American economy started growing again, expanding by 2.4% in the second quarter of 1958, 9.6% in the third, and 9.5% in the fourth. In the first quarter of 1959, it grew 7.9%, and in the second quarter it leapt 10.9%.

Similar cycles happened in the mid- 1970s, and in the early 1980s — with the economy contracting more than it did in 2008, then coming back with robust growth. At the time, the media filled magazine covers and the airwaves with talk of the “end of capitalism,” and the “death of stocks” (and the stock market did indeed hit what at the time were scary lows in 1975 and 1982).

(All data from U.S Department of Department of Commerce, Bureau of Economic Analysis)

Are we saying everything will be fine? No. We’re simply saying that a lot of the “reasons” the media has been throwing at us are mostly noise and nonsense. They are not reasons to think that we’re now in or are heading into a Depression.

Here’s the bottom line. If we are in a recession comparable to the downturns we mentioned above (as the numbers so far indicate), we should be out of it within a year. The economy will turn up and we’ll forget all about the end of capitalism and the death of stocks.

But just so you don’t think we’re turning “Pollyanna” on you, there may be a darker side to all these numbers. It could very well be that the credit bubble that recently burst was a bubble building since World War II. That would make those other downturns we cited above bumps (albeit it violent bumps) along the way. If what we just experienced was the bursting of a giant credit bubble that started in the 1950’s, picking up steam in the late ’70’s – early ’80’s (which included an awful bout with high inflation), we could be in for more than a bump.

In fact, we could legitimately compare what’s going on now with the collapse of a similar credit bubble that began after World War I and culminated in the Great Depression. Again, the jury is out. We just don’t know yet.

But rather than just shrug our shoulders and let it go at that, we’ll instead turn to the one source that really does have something to say, a source that “talks” to us daily and has a pretty good track record of calling the good times and the bad times: the stock market. What’s it telling us now?

First, let’s remember that most of the daily price movements of the stock market are a lot of chatter. And that chatter feeds the noise and nonsense we’re trying to ignore. To make some sense of what the stock market is saying, you’ve got to try to look at longer trends, not daily price movements. Look at it this way: focusing on the daily price movements of the stock market would be like focusing on individual words when someone is speaking to you. Individual words only make sense when they’re heard as part of a whole sentence. And that sentence will make more sense when it’s part of a whole thought expressed in a paragraph. Got it?

The sentences and paragraphs of the stock market are the longer trends. And it was while looking at those longer trends that we recently think we “heard” something pretty important:

The verdict is in. Today the D-J Industrial Average closed below its November 20 bear market low…This is no time to be invested in common stocks, with few exceptions.(Note: there are exceptions.)

The bulletin goes into a lot more detail. We outline the specific reasons the market has provided. They’re hard to dispute. Interested? Pop us an email and we’ll send you rest of the story.

That’s it for now. Short as promised. So was any of this helpful? If you think so, let us know (see email address below). And don’t let all that noise and nonsense get to you, OK?

Finally, here’s that story we promised you.

We were as awed and inspired as you must have been when airline pilot “Sully” Sullenberger landed his disabled jet in the Hudson River and saved all on board. So we searched for stories about the miracle on the Hudson and came up with one we’d like to share with you. We traced it back to its source (thedivinemercy.org) and got permission to reprint it. Yes, it’s a religious website. But you don’t have to subscribe to any particular religion to appreciate Fred’s story. We present it, slightly edited:

A banker on a business trip in New York City, Fred Berretta had just checked into his hotel room. He had about 20 minutes down time before he had to meet his colleagues.

For some reason he decided to clean out his briefcase, something he hadn’t done in a long time. As he emptied it out, he came across a booklet he had stuffed into a pocket years ago on praying the Chaplet of The Divine Mercy. He recalls having prayed it a few times years ago. But by Jan. 15, 2009, it was a good intention mislaid — among spreadsheets and quarterly reports and matters that seemed far more pressing.

Only two weeks prior, Fred had made a New Year’s resolution to try to get into better spiritual shape. Here in this hotel room was an opportunity to fulfill it. So he followed along in the booklet and prayed the chaplet.

The time happened to be 3 o’clock, known as the Hour of Great Mercy, when Jesus died on the cross. Fred would consider that detail the following day — as he was preparing to die.

He would be among the 155 people to board a jet airliner at LaGuardia Airport bound for Charlotte, N.C., his home town. Ninety seconds after takeoff, the jet would apparently hit a flock of geese, the engines would explode, and the plane would lose power at 3,200 feet. The aircraft would be out of reach from any airfield. It would lose thrust and altitude. Everything would become eerily quiet. Fred would cinch his seatbelt. His left hand would clutch the armrest, his heart would race, his face would be flush.

He would think about his family — his wife and four young children. He would think about God, about death, about trust, about an extraordinary promise made by Jesus that he read the previous day in that booklet.

“Prepare for impact,” the pilot would say over the PA system.

What was the promise? Suddenly, it would come to him, the last passage he read before heading off to his meeting. Jesus said, “This is the hour of great mercy. In this hour, I will refuse nothing to the soul that makes a request of Me in virtue of My Passion (Diary of St. Faustina, 1320).

As the ground surged into view, Fred would look at his watch. It would be 3:30, the Hour of Great Mercy!

“I prayed with every fiber of emotion and sincerity I could muster, ‘God, please be merciful to us,'” Fred would recall two weeks later.

‘Miracle on the Hudson’?

You’ve probably heard about the crash landing of Flight 1549 in the Hudson River on Jan. 15. No one was seriously injured. Politicians and news anchors quickly dubbed it the “Miracle on the Hudson.” In the history of aviation no jet airliner had ever made an emergency landing on water without casualties.

Then, there were the news images of a US Airways Airbus floating gently down the frigid Hudson, like some sort of breaching, people-friendly, aquatic creature. The passengers stood on its wings, calmly awaiting rescue. Amidst all the news of economic collapse, of tens of thousands of layoffs on a weekly basis, of families in peril, of a reckoning at hand for a culture of greed, this plane, these passengers, its pilot, all served as a sort of restorative balm on our nation’s collective conscious.

The story made you gasp, gulp hard, smile widely, and be thankful. Thankful for what? For good news. For heroes in the pilot, Chesley “Sully” Sullenberger, and the rest of the crew. Thankful in the knowledge that in the panic-filled moments when the plane lurched to a stop it wasn’t every man and woman for himself or herself. Thankful that humanity’s better nature was on display. Thankful the incident wasn’t terrorist-related, but apparently geese-related. Thankful that a guy like Fred Berretta, 41, would live to walk through the door of his home once again, hug his wife and children, and make sure they knew he loved them — that he always had and that he always will.

Vinny Flynn who?

We may never have learned Fred Berretta’s story if it weren’t for Vinny Flynn. Following the crash, Fred felt compelled to send an email of thanks to Vinny, the former executive editor at the Marian Helpers Center, in Stockbridge, Mass. Fred had never heard of Vinny until about two hours before he boarded Flight 1549.

Following morning meetings on Jan. 15, Fred found himself in the unusual position of having some free time on a business trip. It was noon. He stepped inside Manhattan’s St. Patrick’s Cathedral. He stayed for the 12 p.m. Mass. Afterwards, he went into St. Patrick’s gift shop. A book caught his eye — Vinny’s 7 Secrets of the Eucharist (Mercy Song Ignatius, 2006), which, with citations from St. Faustina’s Diary, gives a greater understanding of the mystery of the Eucharist. Fred also purchased a St. Michael’s scapular.

In an interview with thedivinemercy.org this week, Fred explained what happened next:

“I got into a cab and went to the airport,” he said. “My flight was delayed about 15 minutes, so I sat there and started reading Vinny’s book. I was really taken by it. I boarded the plane and continued to read. Just as we were rolling out for takeoff, I put the book away and closed my eyes and began to reflect on what I had been reading. Then, I heard the impact, then the explosion, and the plane shook violently. I was sitting in seat 16A, which is behind the wing. I could see smoke coming out of the left engine. You could smell the jet fuel.”

As soon as Fred, a private pilot, realized the second engine was also not functioning, he became tense, like everyone else around him.

He heard some cries from the cabin.

“Some of us looked at each other,” he said. “There was nothing to be said. I knew that the only thing I could do was pray.”

A Resolution

These were the other things he knew: This sleek, high performance jet airliner had suddenly and irreversibly become a 73-ton glider sinking fast above one of the nation’s most densely populated regions. It would touch down somewhere, somehow, very soon, at a speed of about 120 mph. The chances of survival were almost nil.

He thought about his family, how hard his death would be on them. Indeed, that was the most painful part of the experience for him, his concern for them.

He thought about the very thing all these years that seemed to stand in the way of growing deeper in his faith. It came down to this: trust. He didn’t have much. Ever. He had once fancied himself among the titans of commerce. He once trusted that money would bring security and peace of mind. This flight wasn’t the thing that taught him otherwise. Rather, it was this past year. The bottom fell out of the economy, and with it, much of Fred’s savings of the last 20 years.

By Christmas, the self-described “half-hearted Catholic” knew in his heart the only security in the world is the security found in God, which led to his New Year’s resolution; which led to him praying the chaplet in a hotel room; which led him to buy Vinny’s book; which led him to close his eyes in seat 16A, his trajectory heavenward, and reflect upon how God is real and He loves us and that He wants us to turn to Him in trust.

Which is exactly what Fred did when he suddenly realized it was the Hour of Great Mercy and he would probably be dead in a matter of seconds. He trusted, truly, for the first time.

All these fragments of thought seemed to piece themselves into place. The plane was going down, yet everything was making sense. He admits he was in shock. But he also felt at peace, a deep peace. God had allowed him to find the Divine Mercy booklet in his briefcase. God had steered him to Vinny’s book. God did all this, he thought, to prepare him for death.

He hunched over in his seat to brace for impact. He prayed for God’s mercy. Then he prayed two Hail Marys and one Our Father. He made it halfway though a prayer to St. Michael, the archangel, when the plane hit the water, came to a stop, and bobbed up and down.

‘True Peace’

“Under the most precarious situations I could ever imagine,” says Fred, “God taught me what true peace is all about — that it’s found in accepting God’s will. That we must try our best in this life, but not sweat the small stuff, and hand control over to God.”

God was doing more than preparing him for death: God was preparing him for life.

We’ll add one more little thought. As we get deeper into this crisis, money and “stuff” will take a back seat to “higher” things like (as we pointed out last month) the True, the Good and the Beautiful…or, in this case, connecting – with our family, friends, traditions, and, yes, with God. Mark our words.

Sincerely,

Rick

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com