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How to Stay a Step Ahead of This Market

By Tobin Smith

I call what we are currently experiencing the "Great Economic Reboot."

Just as you reboot your computer to reset your system, our economic system is getting reset to the metrics and structure of the last sustainable economic period -- 1997.

This means we will see the repricing of stocks and price-earnings ratios back to 1997 levels -- a time before the Internet boom and before financial services leverage was baked into the market.

Ultimately, this reboot is a good thing, but the de-leveraging process is going to be more painful as the credit cycle worsens. We still have the wave of defaults in structured corporate credit, private equity credit, consumer credit and municipal/state credit -- all of which have yet to hit financial balance sheets.

It short, things will get worse before they get better.

It Doesn't Pay to Wait

On Monday, the National Bureau of Economic Research (NBER) said its Business Cycle Dating Committee determined that the United States entered a recession in December 2007.

The NBER characterizes a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income and other indicators."

And, hey, the NBER's call was only one year after the fact.

On the other hand, we call a recession when our ChangeWave Alliance surveys show we've entered one -- and that call tends to be way ahead of the rest of the crowd.

At the beginning of 2008, our Alliance research issued the following reports:

Jan. 9, 2008: "ChangeWave Survey Points to a Recession in Consumer Spending"

Feb. 20, 2008: "New Survey Confirms U.S. Business Spending Has Entered Recession"