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(Dis)Information Overload
By Josh DeForest
October 29, 2009 10:22 AM
With abundant information available through many print and online sources it can be difficult to decipher exactly what is going on in our economy through all the noise. On one hand, you will hear claims that the recession is over and on the other, warnings of a double-dip. There are many voices vying for your ears and each voice has its own agenda. We all know that statistics don’t lie, but liars use statistics. The truth is that you can find data to support just about any conclusion you want to draw. Sometimes a fresh look at the facts can be more telling than all of the “sophisticated” analysis that comes across the wire.
Where we were
Remember back before we began this rollercoaster ride? Back when every family had two or three cars, a boat, and the condo by the beach perhaps? Usually financed too? Those were the days of easy credit. Our citizenry leveraged up making personal balance sheets, well, not so balanced. Risks were taken, sometime money was made, and the bubble inflated one credit card swipe, home equity line advance or car loan at a time. Trade up in a down market they say. Well why not trade up in an up market? I can get a mortgage and finance that trip to Europe and I don’t even have to show them my tax returns!
What we have come through
A house of cards comes tumbling down – and this one needed to. So we have seen the reaction, and then the over-reaction (the market always over-corrects on the downside), the bubble had burst. Equity markets screeched to a halt, banks reeled back credit, the sky was falling. This is no news to anyone; we could not go fifteen minutes without a news source or television add reminding us of what dire straits we were in.
Where we stand today
Slowly but surely we are getting off of the emotional rollercoaster that we were on and are returning to rationality again. The greed that propelled us and the fear that yanked us back are beginning to subside; the hangover is beginning to fade as we try to figure out where we are. When we get back to basics, we see credit opening up, but in a more level headed way. We still have yet to see great economic numbers as much of the recent positive earnings reports from public companies are still as a result of cost cutting, not increased revenues. The housing market seems to be returning somewhat, but we have to ask ourselves what it would look like without government stimulus. Car sales showed a tick up but we are all aware that Cash for Clunkers really just sold tomorrows cars today. Unemployment is a lagging indicator and is still rising as one would expect, and we really have not seen the return of the consumer as households try to pay off debt.
Conclusion
So should we listen to the bulls or the bears, is it doom and gloom ahead or do rosier times lie ahead? I think that the present economic conditions show that a fast recovery is out of the question. But much of the trepidation we experienced last year has diminished. What is most likely ahead does not make tantalizing headlines or breaking news stories – we are in this for the long haul. The government, which attempted to spend and print its way out of the recession, has its work cut out for it to turn off the tap before inflation accelerates but without swiping the punch bowl too early. There is a lot of uncertainty ahead, and each information source has its own purpose and agenda. Do you have the tools that it takes to navigate this uncertainty? What will happen to your portfolio if inflation spikes? Will your pricing policies be adequate in light of a changing economic outlook?
It was for this very reason that we created our Decisive Analytics model. The model utilizes Monte Carlo simulation so that we can test and re-test given changing market conditions. It also helps us plan for the unexpected and allows us to test the “what if” scenarios.
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