Saturday, September 12, 2009

The Shape of Things to Come

For the last dozen years or so, one of my weekly habits (to be fair, one of the few good ones) has been to keep us honest. By that I mean that come rain or come shine, I take a snapshot of all of our accounts and come to a final tally of where we are at that particular instance in time. Since I get updated numbers for some accounts daily, others weekly and still others monthly or even quarterly, it's hardly gospel. But by doing what the pros call ‘mark to market" on a regular basis, I've got a pretty good picture of where we are from a financial standpoint.

The good news is that by looking at the big picture you can see some general trends. I'm pleased to say that all things being equal we have had basically an "up" progression. Not straight up, to be sure. Events have pushed it down (the tech bubble bursting, 9/11, the most recent market collapse), as have major purchases (remodeling, cars, college educations). But all in all, paraphrasing Ronald Regan's famous question from the final presidential debate of 1980, I can honestly say we are better off today than we were a decade or so ago.

Ploting the data points gives us an upward sloping "M," a pattern that has probably been enjoyed by many over a similar time frame. But of course, what we're all concerned about is not where we've been, but where we're going. Since the end of that graph was most decidedly down... and in a big way... until about March, the question is what next. And there is no shortage of opinions as to what letter we're in the processing of scribing as we speak.

It would seem that those who profess we're in an "L" have been beaten back. That's where we get to the bottom and just stay there. Conversely, some optimists think that we're in an "N," where once the recovery starts it will be straight up. Still others suggest we're in an "O," where we run around in circles, from bust to boom and back, without having any clear direction.

The big three that have the most credence among professionals seem to be "U," "V" and "W." The who support the U believe that what we're seeing in the economy since March has no staying power, and we'll bounce around at the bottom until structural changes are made and we start back up. Then there's the V's, who think that what's done is done, and we're climbing out, though perhaps a good bit less steeply than we came down. And there's the W's, the double dippers, who think it's going to be a rocky ride and the more recent good news will be met by a dose of realty, then some more upside and back again. It certainly plays to our schizophrenic nature, not to mention when paired with recent history, nicely forming my initials.

These outlooks are all based on the perception that some kind of upside is under way, that we're turned a corner, though how sharp a turn is in question. You might disagree with that basic premise, especially if you look at your kid's 529 college savings plan or were about to tap your Keogh for a leisure-filled retirement or examine the most recent numbers on employment. Or as one poster noted on the Wall Street Examiner website, "What recovery? Did I miss something?"

The bottom line is that nobody has any idea what will happen. As with our own personal chart, it takes years of plotting little ittty bitty points before a true picture even begins to emerge. Just as you can't make out the tune on a record being played at a speed of one a revolution per century, and indeed might wonder if it's turning at all, it's only after you step back and look at the big picture that you can say what actually happened. So it's hard to be writing in script when we've only just pressed the pencil to the paper.

More to the point, it's also worth pointing out the professionals that will be the ones who will eventually make this determination for the history books are the same ones who missed the whole thing in the beginning, who thought that our upwards trajectory would continue to be just that. So any authoritative statement as to what is going on should be taken with a very large grain of salt. Put another way, it's worth remembering that economists have forecasted 9 out of the last 5 recessions... so at this point in time your guess is as good a theirs.


Marc Wollin of Bedford barely remembers what he learned in Econ 101. His column appears regularly in The Record-Review and The Scarsdale Inquirer.

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