Wednesday, September 26, 2007

Recession Depression

The Famous Author and I happened to catch a little TV yesterday. I talked him into watching the stock market channel to see how his portfolio was doing. Turned out this was a big mistake.

Even though his stocks were doing fine, TFA got so upset at what we saw, the things we heard people say, he had to spend cocktail hour in bed.

What made him worry? In a word, recession. The former Fed Chairman Alan Greenspan, Gary Shilling, a bigtime Wall Street economist, and a respected mortgage banker all predicted the U.S. economy will turn to negative growth before the end of this year. Shilling and the mortgage banker said we're already in a recession.

Oh, yeah. And Donald Trump said the current recession will turn into a full-boat depression.

TFA takes these guys seriously. Especially Greenspan. I thought my boss was going to cry.

I know it's hard to make the case that a fictional stockbroker like me, Austin Carr, could possibly know more, or have a better handle on the future, than Alan Greenspan and Gary Shilling. (Everybody knows more than Donald Trump.) But let me lay out a few facts--the same stuff I told TFA to get him out of bed.

1. Unemployment is at one of its lowest points ever. Less than 5%. When almost everybody is working and spending money, recessions are almost unknown. It takes a major disaster to turn things negative. And while Greenspan and Shilling say the housing crunch and the record cost of energy are indeed such a disaster, the statistics say otherwise. The U.S. economy has been growing with both of these negative factors for more than three years.

2. The Federal Reserve Board is lowering interest rates. Dramatically. Last week's half-point cut in the discount rate--the second half-point cut in a month--is almost certain to steady the financial markets and eventually the consumer. It always has, folks.

3. The stock market is close to its earlier all-time high and holding strong. For more than a century, the stock market has easily been the most accurate indicator of future eocnomic growth. Why should this time be different? Because Greenspan and Shilling say so?

4. Small investors are betting on a recession in droves. They are paying huge premiums to buy put options on various markets and stocks. As we pointed out a week or so ago, these small investors are ALWAYS wrong. And I mean ALWAYS.

"You really think you know more than Alan Greenspan?" TFA asked me last night as I tucked him into bed.

"No. He's a smart guy who's forgotten more about economic statistics than I'll ever know," I said. "But he's not the Fed Chairman any more either. Now he's just a mouthpiece for big Wall Street interests. You can never trust those guys to give you the straight scoop. They're making bets on the markets."

TFA pulled the covers tight around his neck. "I hope you're right."

"Of course I'm right, you famous author you. Everything's going to be just fine." I fluffed his pillow.

Geez, my boss is a wimp.


Rick Bylina said...

Austin rules during the six month adjustment period. Then we go zoom, zoom, zoom again.

Anonymous said...

It's not a recession, it's a buying opportunity!