Wednesday, November 19, 2008

Three Scenarios for the Economy (and the Stock Market)

Three Stock market scenarios: Business as Usual, Headwinds, Snowball
Which way are the economy and stock market going to go? Up? -- or down. And, how far? Since the future is unknowable, rather than planning for a single future, strategic planners find it useful to develop multiple scenarios. Typically, one develops 3-5 scenarios covering a wide range of possible futures. In this post, I outline (literally) three scenarios that I think are representative of the range of possible outcomes of the current financial/economic crisis. They range from “Business as Usual,” the best-case scenario, to “Snowball,” the worst-case scenario. The “descriptions” help me to visualize a future environment so that I can conceptualize plans suitable for that scenario.

I apologize for the lack of prose, but the outline form may be clearer. Equally importantly, I don’t have time to make it "flowery." Note that these are preliminary descriptions and I may update them periodically.

Business As Usual Scenario

It’s always helpful to have a “status quo” scenario; this is also my best-case scenario. In essence it says this economic “crisis” will turn out to be

Sunday, November 9, 2008

The Crisis: A Contributing Factor

As a result of the current financial crisis, there is a growing consensus that the government “dropped the ball.” (See, for example, Michael Grynbaum’s article in the October 24 New York Times.) In other words, the government itself is one of the causes of the crisis it is now attempting to resolve. In particular, the accusers argue, the government is at fault because it did not provide adequate oversight of our financial system. Generally overlooked are more subtle contributions to the current economic crisis, and to the associated stock market crash – some government “sponsored”, some not.

What do the following developments of the last half-century or so have in common?
1. Mutual funds
2. Modern portfolio theory and index funds
3. Deregulation of the stock brokerage industry
4. No-load mutual funds
5. Tax sheltered accounts (e.g., IRAs)

Each of the above was hailed, at least to some extent, as giving the general public broader access to the potential riches of the stock market. Largely because of these developments, over the last 50 years the public’s participation in the stock market has increased dramatically. Unfortunately, they have also inadvertently combined to engender some profound, and somewhat disturbing, changes

Sunday, November 2, 2008

VOTE (quickly)

My guess is that urging people to vote in this year’s election is “preaching to the choir” -- so, I won’t bother. Voters have turned out in record numbers across the country to vote early. Yet, there is the possibility that there may still be record numbers remaining to vote on Tuesday.

I believe that diversity is a good thing. Too much agreement often leads to sloppy thinking; disagreement leads to better decisions. Partly to encourage this diversity of thought, my completed ballot is often a hodgepodge of democrats, republicans, and an occasional minor party candidate or two. In the past, this has meant that I have often spent an inordinate amount of time in the voting booth. Recently, my hogging the voting booth has not been a problem since there have always been open booths available for the voters behind me.

However, this year, to do my part in speeding things along, I will be filling out a sample ballot beforehand. I have already spent more than 20 minutes completing my sample ballot. That’s 15 minutes less that I will need to spend in the booth. If you are a “booth hog” like me, as a courtesy to those behind you, I urge you to plan ahead and make your decisions before, not while, you’re in the booth – especially if you’re in line ahead of me.