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Five Things: Now It's the Economists' Turn


As we adjust to a harsher economic reality, everyone will get their turn in the blamelight.

1) Now It's the Economists' Turn

We knew this was only a matter of time.

"The downturn exposes the decline of economic expertise," Newsweek observes in the March 16 issue.

"Think of all the diet advice, all the exercise programs, all the child-rearing books, all produced by ostensible experts, so much of it subsequently refuted, exposed as nonsense, if not outright pernicious.

Now it is the economists' turn."

2) Sometimes Failure Happens

So is there really a decline of so-called economic expertise? Maybe economists today just aren't as good as economists in "the good old days." Or maybe economists simply never were quite as good as a decades long bull market made them appear to be.

The reality is that this isn't about the quality of economic forecasts or the decline of economic expertise. No, there's simply a decline of common sense coupled with the stubborn hubris to believe we can be masters of markets, both traits compounded by the inability to admit to ourselves that we are not living in an episode of MacGuyver.

Not every ending is happy. Not all problems get solved. Everyone can't be rich. Sometimes failure happens.

3) It's Not the Destination, But the Path

Speaking of forecasting, many years ago - back when based on my occupation then as a professional horse racing handicapper people presumed I had some expertise to impart - I was part of a large group having lunch at Keeneland in Kentucky.

Before the first post I gave a brief rundown of each race and made a selection, isolating one horse in each race that, gun to head, I thought would win the race. Of course this kind of public handicapping was almost always an embarrassing exercise in futility, but it was a "service" I was always happy to provide to friends... in exchange for a few drinks, lunch and a few drinks.

But this day something weird happened. The horses I selected started winning. The first race? Winner. Second race? Winner. Third race. Fourth race. After eight races six of eight horses had won. Then, the ninth won too. My table companions were deeply impressed. They shook their heads and all agreed that it was an impressive display of handicapping.

"I just wish I had followed your picks," one of them said. "Wow, me too," another chimed in.

"Wait a minute," I said. "Didn't anybody here have any of those horses?"

The table sat in stony silence looking at one another. After an uncomfortable pause, one person spoke up. "I had a few of them in exactas," he said. "Yeah," another admitted, "I made sure to use some of them in trifectas and a few pick threes, but just couldn't put a string of winners together."

And so there it is. Similar to forecasting a bottom on the S&P 500 at 350, 400, 600, wherever, it's not the destination, but the path that matters.

4) Gold In the Closet? Not Anymore

It's almost never a good sign when an investment vehicle or asset class appears in the pages of Newsweek. Now, this is not Newsweek's fault. It's simply the case that when an investment has generated enough popular discussion and interest to merit inclusion in a general interest magazine, it means, almost by definition, that there are fewer and fewer people available to continue the trend.

"In times of stress, gold's unique properties and its long history as a valuable asset make it an appealing buy."
- Newsweek, "Cash In a Mattress? No, Gold In the Closet," March 16, 2009

Let's just hope we don't see any Mr T appearances anytime soon.

5) "A Revaluing of Intangible Assets"

"It's kind of funny, but I feel much more satisfied with the things money can't buy, like the well-being of my family, I'm just not seeking happiness from material things any more"
- New York Times, "Conspicuous consumption, a Casualty of Recession," March 9, 2009

If the 90s and most of the first half of the 2000s were about accumulating and displaying "wealth," the next decade will continue the mean reversion toward something altogether more austere, if not more sensible. Debt reduction and the rejection of (and guilt projection toward) materialism will continue as meditations on not just doing more with less, but doing less... period.

All manias leave something undervalued. What has been undervalued for a long time now - reflection, quietude and time, to name but a few of the things "money can't buy" - will now enter their own bull market, which entails a different ordering of priorities and a more challenging view of what it means to "possess wealth."

While this may seem refreshing and positive in the way I've oversimplified it, the difficulties we face going forward will lie in how capitalism seeks to commoditize things that are difficult to measure and quantify, and what mediums of exchange compete for primacy in the market for these intangibles.
No positions in stocks mentioned.

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