I'm hearing some pretty spooky stuff about the stock market and the economy too - and then I hear the opposite, everything is wonderful - so who and what do I believe?

Another thought provoking article by Ernie McDaniel - as seen in Forum News.
Nobody knows for certain. Not Greenspan or the President or your friendly broker. And the more certainty any commentator implies, the more dubious you may want to consider his position. Investment decisions involving the bulk of your retirement funds may be threatening decisions indeed when based on some grand assumption about the future, whatever the basis of that assumption. And certainly, as most any investment material you've ever read likely asserted, the past is no guarantee of the future. That said, history does have patterns worth knowing about.

One pattern that many folks accept is that growth of the economy and growth of the stock market are in lockstep. They are wrong, wrong, wrong. In the past the economy and stock market have been quite disparate for periods of a decade or two. For example, the U.S. economy grew at about the same rate from 1966 through 1982 as from 1982 through 2000. The market between '66 and '82 seesawed five heart-wrenching times over this 16 year period only to end at about its beginning point; then, contrarily, the market between 1982 and 2000 increased over ten-fold. In the earlier period the market grew much less than the economy; in the more recent, much more. (Data from Richard Russell's Dow Theory Letters.)

For the last 100 years in the stock market, such alternating periods of relative bust and boom and bust and boom have been quite evident. Based on that repeating cycle, the market could currently be in the fifth year of a long-term negative cycle, with anywhere between 3 and 15 years to go before it's done wringing tears (and retirement funds) out of investors by means of one major up-and-down swing after another (Dow Theory Letters).

On the other hand, some prognosticators have high expectations both of the stock markets and of the economy based on, among other things, the shallowness of the last recession and the heated growth of the economy since. Critics of this position say that inevitable downward corrections in both the markets and the economy were dampened inappropriately through government manipulation - our government and others. These critics expect the manipulation to backfire. In time, they say, the real corrections may come, and with results made all the worse for the delay. Some of these less than optimistic commentators say a major downturn may occur shortly after the 2004 presidential election; others say not until Summer 2005; others say only sometime before the end of 2006.

So, hey, who knows. Well, as I offered to begin with, nobody. That's why you may want to consider other methods of choosing investments than to accept broad predictions of the markets and the economy. I suggest you put your time and energy into learning about these methods rather than into horoscopes, tarot cards, tea leaves, brokers' predictions, or any other form of fortunetelling.
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Ernie McDaniel is a Chartered Financial Consultant and President of McDaniel Financial. He can be reached at 318-798-9022 or via email.

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