Something Most People Knew

Well it's now official. We are in a recession.

Most people probably already realized this but Federal Reserve Chairman Ben Bernanke said yesterday that the economy has been in a recession since December 2007. Anyone who owns a business (or is involved in management) knew that the economy has slowed down (or retracted in some areas). We see companies laying people off. We have seen a rise in bankruptcies and defaults.

What surprised me was how the stock market reacted to the news yesterday. I assumed that the results from Black Friday (and rest of the weekend shopping) would be the key driver to the market along with some profit taking on Monday.

However, the market reacted very negatively to the news with the Dow giving up 679 points (7.70%). I thought the market was intelligent and efficient when it is open and active. Yet the market seemed to be surprised by something the average person probably knew. I do not understand how this was not priced into the market already.

I still feel that the government needs to take some active role in the recession to help stimulate the economy and put safeguards in that this will not happen again (specifically for the bad mortgage practices). However, I am still not sure that the current intervention of infusing money (or taking stakes) directly in companies is the best approach.

I just hope that years from now President Bush is not compared to Hoover for his inaction at the start of the Great Depression. I also hope that President-elect Obama is not compared to Roosevelt for extending this recession longer.