Thanksgiving surprise locks in recession for 2008

The stock market gave us a real turkey in the Wednesday session before the long weekend. The closing price was not only at a level that indicated the market will go lower; it was the method of the close that was most alarming. We will have a recession in 2008 if the Dow Theory is correct. The last time we had the same signal was September of 1999 which led to the recession of 2000-2002.

Our friend Mr. Dow is best known for the creation of the Dow Jones Averages. What makes his story so unique is Dow was a self made man. He was a reporter, financial writer, broker, member of the New York Stock exchange, analyst and editor.

Having moved off the floor of the exchange to commit full time to the fledgling Wall Street Journal in its 2nd year of existence, he developed the Dow Jones industrial and transportation averages to give readers a better feel for the broader market. During his 22 years on the street, he lived thru three financial panics which resulted in a contraction on the overall economy later on. He had a unique feel for human emotion and how it was expressed in stock market prices. This brought him to this conclusion.

“The price trend is not saying what the condition of business is today, but what it will be months from now.”

The market close last week was below the August low and the divergence of the move on the way up confirms a “Dow Theory” Recession is on the way. We had one right before the crash of 1929 as well.

So how do we create a thriving licensing and franchising business during the next downturn? High volume low margin businesses rely on commercial credit to fund their operations and consumer credit to buy their products. During a recession, they will get hit the worst. You can moderate the market you are in by controlling the price or controlling production. Businesses that rely on the production model are the most susceptible to recession. Position your brand accordingly and you will thrive while others get the squeeze.