GDP Shrinks Most In 5 Years

The Wall Street Journal reports that the Gross Domestic Product contacted 2.9% in the first quarter (the most in five years) and represents what they claim is:

"...the largest drop recorded since the end of World War II that wasn't part of a recession."

The decline in GDP stands in stark contrast to the DOW closing at an all time high of above 17,000. Many feel that stocks are largely overvalued and, to me, it feels as though we are on the precipice of a very large correction. Paul B. Farrell, writing for the Market Watch (of The Wall Street Journal), praises the current bull market in his commentary “The Great Obama Bull Market will roar till 2016”.

Mr. Farrell realizes that while these market conditions provide reason to “celebrate,” they are unlikely to last much longer. Farrell references a recent article by Jeremy Grantham, whom he refers to as “one of America’s more accurate market forecasters.” Grantham also predicts that this bull market will likely continue until sometime around the 2016 election, at which time the market will likely undergo a very severe correction:

"Grantham’s wrap-up: “then around the election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed can dig up.” Yes, Grantham is predicting a possible market collapse from a seven-year long bull market. Meanwhile, enjoy a couple more great years, and protect yourself for later."

Farrell continues:

"Today Wall Street stocks are climbing a wall of worry. A similar event happened in the 2002-2008 bull run. P/E ratios were so high in 2004 Wall Street panicked. The market ignored it, barely paused on its six-year bull run till its 14,164 peak in late 2007."

We all know what happened in 2008; we must not be blind to recent history. Aggressively eliminate all your personal debt and consider how you can prepare yourself financially for what is coming.

Sources: (1) U.S. Economy Shrinks by Most in Five Years, (2) Wall Street Journal - Dow Jones Industrial Average Closes Above 17000 for First Time, (3) Market Watch (WSJ) - The Great Obama Bull Market will roar till 2016