Economic Roulette

Long, long ago, in a place no so far away, a certain mantra emerged. “It’s the economy stupid,” was the hue and cry; it was heard far and wide. Sixteen years after James Carville coined that phrase during what would become then candidate Bill Clinton's successful presidential bid, we have come full circle. Well sort of, anyway. The United States has fallen precipitously into a financial abyss that many analysts compare to the Great Depression.

That this financial turmoil is interwoven with the daily drama and intrigue of presidential politics, and a National Election, as was the case in ’92, may be as far as the comparison goes. Most observers believe we have not faced similar challenges as we do in this crisis, in many generations.

As we watch experts from Washington and New York, from Wall Street and Main Street, from all across America, and from all over the World, it almost seems as though in our efforts to tackle this vexing problem, we are caught up in a high stakes game of Economic Roulette. The dominant colors on a Roulette Wheel are red and black; likewise the dominant colors in General Accounting Principles are, you guessed it, red and black. This is not a primer in Roulette or Accounting. All you need to know for the purpose of this discussion is that, unlike Roulette, to win at Finance/Accounting, you have to land in the black.

Over the course of the past several weeks, we have seen financiers, brokers, politicians, and bureaucrats of all stripes take their shot at spinning the wheel. Each move is akin to betting that a particular strategy or tactic is the move that will result in our landing back in the black, or at least moving in that direction. Most of us have trained a myopic lens on the problem. With the fate of our IRA’s, 401k’s, education funds, and retirement plans riding on each next big decision, it is easy to develop a micro focus.

Unfortunately, this perspective is much too limited in its scope. That’s because 21st Century Capital and Liquidity Markets are global; it is essential to develop and maintain a macro outlook. Recent developments have created instability in European and Asian markets as well as our own.

One of the characteristics of an age when information is both instantly available, and constantly proliferating, is that there is an expert on every corner, or at least on every TV station, radio network, and of course all over the Internet. This cadre of wall-to-wall advisers is anything but coordinated and integrated. Some argue, get liquid; take your holdings out of the stock market, and do it now. Others adhere to conventional wisdom, and admonish now is not the time to divest. In fact, gurus who hold this mindset, in sync with the divine code of Market Magic, buy low, sell high, tend to suggest now is a great time to buy, or expand your position and portfolio by adding well-researched stocks. I think you can see why I call it Economic Roulette.

There are more twists and turns than anyone can track effectively. Americans watched with interest, angst, pique, and frustration as an unpopular and lame duck President, his chief economic advisers, a low-approval rated Congress, and two sparring Presidential candidates labored to devise a winning game plan. The first effort, a trillion dollar, OK, $700 million Plan, was roundly panned, and soundly defeated when Republican House Members voted against it by a more than 2-1 margin, 133 against, 65 for.

Eventually, the revised Senate Bill passed both Houses of Congress. Interestingly, the fiscally conservative GOP, which torpedoed the original House Bill, voted to approve the Senate Bill, which by all accounts was significantly more pork laden. Go figure; it’s Economic Roulette, baby!

This week, after the greatest single increase in the history of the Dow, 936 points, and the expected raid on capital, the Index retreated. Fits and starts; get used to it. Virtually all experts say the recovery will be a slow process. The good news is most of those experts think we will recover, and history suggests that is true. But that likelihood notwithstanding, there are victims.

At any given time, a cohort of people is planning to transition into hard-earned, well-deserved retirement. Many who thought they were approaching that momentous milestone will have to recalculate, reconsider, and re-plot that course. Many parents who believed they had secured the funds necessary to send their children to college are looking a new reality squarely in the eyes. Many retirees who left the workplace figuring they had enough money from their investments to see them through their retirement years comfortably must revisit that conclusion. And of course, do not forget the catalyst for these melting money markets, bad Real Estate loans.

These and other victims remind us, yet again, of the unpredictable nature of games of chance. Roulette is defined thusly:

“a game of chance played at a table marked off with numbers from 1 to 36, one or two zeros, and several other sections affording the players a variety of betting opportunities, and having in the center a revolving, dishlike device (roulette wheel) into which a small ball is spun to come to rest finally in one of the 37 or 38 compartments, indicating the winning number and its characteristics, as odd or even, red or black, and between 1 and 18 or 19 and 36.” Copyright © 2008, Dictionary.com, LLC.

As we watch President Bush, Secretary Paulson, Chairman Bernanke, Speaker Pelosi, Senate Majority Leader Reid, Congress, and Federal Regulators grapple with the issue and gamble with your financial future, while Presidential candidates McCain and Obama shadow box around the matter, it is easy enough to understand that, despite boisterous protests to the contrary there are a lot of bitter and frustrated Americans…in the Heartland, and elsewhere...and with good reason. Economic Roulette can do that to you. I’m done; holla back!

Read my blog anytime by clicking the link: http://thesphinxofcharlotte.blogspot.com. A new post is published each Wednesday.


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