On a rainy day in New England while stocks were falling on Wall Street, something great happened. Over one hundred politicians, union leaders, businesspeople, non-profit employees and academics gathered for one reason: to help the state in which they all live. I was lucky enough to serve as the moderator of Rhode Island Governor Donald L. Carcieri’s Economic Forum and it was truly inspiring.
The guests listened to three speakers who provided an excellent backdrop to the current RI economy. John Rhodes, the Senior Principal of Moran, Stahl and Moyer helped us understand what variables are weighed by companies that are undergoing site selection, Professor Paul Harrington of Northeastern University provided illuminating data with regard to the state’s labor force and Jim Eads, the Executive Director of the Federation of Tax Administration discussed the intersection of tax policy and economic development.
The speakers warmed up the room for the main event: an open exchange of ideas to help the state navigate the financial crisis at hand. To introduce participants to the process, I began with two quotes:
1) “You meet your destiny on the road you take to avoid it.” Psychiatrist Carl Jung was talking about the human psyche, but the application to our current financial crisis is particularly apt. How each individual, business, organization and municipality faces the current economic challenges can define future success. I urged participants not to avoid hard truths and instead to confront the situation with candor and create solutions that would help the state achieve its goals.
2) "It is not necessary to change. Survival is not mandatory." W. Edwards Deming, a statistician who is known as the father of the Japanese post-war industrial revival was a man who understood that if nothing changes…then nothing changes. The Governor, as well as all of the participants, recognized that the state and the nation face tremendous challenges. Those who are creative will not only survive, but thrive when the eventual recovery takes place.
To that end, the Governor asked participants to consider three relatively simple (but not easy) questions:
1) What can be done to stimulate the RI economy in the short term?
2) What can be done to stimulate the RI economy in the long term?
3) What are the obstacles to economic development in the state?
After one hour of thoughtful consideration, the participants delivered insightful and interesting ideas to the Governor, who will synthesize the information so that he can adjust the 2009 economic and growth plan for the state. The Forum was community at its best—no mess, no politics, just hard work. I was truly honored to be part of the day.
Friday, November 7, 2008
Thursday, November 6, 2008
That was quick
Yesterday both Democrats and Republicans alike were savoring the fruits of democracy. I knew this election was going to be different when a close family friend who used to work for the ultra conservative Heritage Foundation confided to me that he not only planned to vote for Barack Obama, he had also given money to the campaign. And so, for the first time ever, the United States will have a black president.
That was all well and good until the stock market opened at 9:30 and suddenly, the post-election afterglow faded quickly. That sure was quick! After enjoying a strong Election Day rally, stocks gave back the previous day’s gains and then some. With the results of the election set in stone, investors were reminded that the economy is still in a precarious state. Data indicated that the service sector contracted and a weekly employment report portended at least a 200,000 job loss when Friday’s employment report is released.
The damage was broad-based: the Dow Jones Industrial Average, which had spiked 305 points on Election Day, fell 486.01 points, or 5.1%, to 9139.27. It was the biggest one-day loss for blue chips since Oct. 22, the twelfth worst point loss in history and the lowest close since Oct. 29. The S&P 500 fell 5.3% to 952.77, led down by the financial sector, which fell 9.2%. The Nasdaq Composite Index snapped a six-day winning streak, finishing down 5.5%, at 1681.64.
Of course we all knew that one day, one election, even a historic one, could not change what we know: the globe continues to be plagued by deleveraging and a widespread economic slowdown driven by lower consumption, investment and trade flows. Investors continue to wrestle with the right prices for stocks amid what could be the most significant recession since the early 1980’s. The depth and length of the recession will determine fair value, but of course it will only be known in retrospect.
For that reason, it is imperative for investors not to get too caught up in either the high-highs or the low-lows over the next few weeks or even months. This is going to take some time to work out and you might drive yourself crazy if you get sucked into the daily movements. If you do sucked in, remember that any extreme feeling is likely to fade when the next day starts…and you just might find yourself thinking, “Gee, that sure was quick…”
That was all well and good until the stock market opened at 9:30 and suddenly, the post-election afterglow faded quickly. That sure was quick! After enjoying a strong Election Day rally, stocks gave back the previous day’s gains and then some. With the results of the election set in stone, investors were reminded that the economy is still in a precarious state. Data indicated that the service sector contracted and a weekly employment report portended at least a 200,000 job loss when Friday’s employment report is released.
The damage was broad-based: the Dow Jones Industrial Average, which had spiked 305 points on Election Day, fell 486.01 points, or 5.1%, to 9139.27. It was the biggest one-day loss for blue chips since Oct. 22, the twelfth worst point loss in history and the lowest close since Oct. 29. The S&P 500 fell 5.3% to 952.77, led down by the financial sector, which fell 9.2%. The Nasdaq Composite Index snapped a six-day winning streak, finishing down 5.5%, at 1681.64.
Of course we all knew that one day, one election, even a historic one, could not change what we know: the globe continues to be plagued by deleveraging and a widespread economic slowdown driven by lower consumption, investment and trade flows. Investors continue to wrestle with the right prices for stocks amid what could be the most significant recession since the early 1980’s. The depth and length of the recession will determine fair value, but of course it will only be known in retrospect.
For that reason, it is imperative for investors not to get too caught up in either the high-highs or the low-lows over the next few weeks or even months. This is going to take some time to work out and you might drive yourself crazy if you get sucked into the daily movements. If you do sucked in, remember that any extreme feeling is likely to fade when the next day starts…and you just might find yourself thinking, “Gee, that sure was quick…”
Tuesday, November 4, 2008
Finally Here
It has been an exhausting two-year campaign and today it will finally end. Two months ago, before the financial system nearly collapsed, the race felt different. We were all concerned about taxes and the economy, but there were other issues as well. Today the polls tell us what we already know: it’s the economy stupid!
Last week underscored the main issues that voters are confronting: the US economy finally went negative in terms of GDP and is likely to get worse, the housing market continued to contract and the stock market closed out a horrible month (October was the worst month for the Dow since August, 1998 and the worst month for the S&P 500 since October, 1987 -- yes, the October of the 22% one-day crash).
During the month, there were panic-driven sell-offs amid fears of a total systemic melt-down. The stomach-churning gyrations pushed stock indexes in massive swaths from day to day as the collapse of investment grade financial companies triggered a run on the financial system. In normal times, swings of more than 4% in a day are rare (there were 3 such days throughout the 1950’s, 2 in the 1960’s and none from 2003-2007), but in the month of October alone, there were nine. Until last month, September, 1932 held the record for the most days with big moves at eight.
And so the voting public starts today knowing that stock prices are at higher levels than the October lows, but they are not likely in a better frame of mind when it comes to considering the global economy. Many have already made up their minds as to which candidate is better equipped to navigate these treacherous times, but even to those, there is an understanding that we have never been here before.
The Wall Street Journal noted yesterday that there “are two relatively recent historical precedents for the current election, where a new president will take office amid a serious financial crisis. Whether John McCain or Barack Obama is elected, he will confront ugly economic challenges like Franklin D. Roosevelt did after his 1932 victory and Ronald Reagan did in 1980… the market posted big gains during their overall tenures, though it is unclear whether the main cause was their policies or the steep declines the market suffered before they took office.”
And that’s probably the most confounding issue for any voter: we can’t truly know which candidate will be better, or lucky or unlucky. The best we can do is gather the information and make the most informed decision possible when we enter the voting booth. Of course no matter what, the darned thing will be over and we can get back to obsessing about our investment accounts or future economic data. Yes, it is finally here.
Last week underscored the main issues that voters are confronting: the US economy finally went negative in terms of GDP and is likely to get worse, the housing market continued to contract and the stock market closed out a horrible month (October was the worst month for the Dow since August, 1998 and the worst month for the S&P 500 since October, 1987 -- yes, the October of the 22% one-day crash).
During the month, there were panic-driven sell-offs amid fears of a total systemic melt-down. The stomach-churning gyrations pushed stock indexes in massive swaths from day to day as the collapse of investment grade financial companies triggered a run on the financial system. In normal times, swings of more than 4% in a day are rare (there were 3 such days throughout the 1950’s, 2 in the 1960’s and none from 2003-2007), but in the month of October alone, there were nine. Until last month, September, 1932 held the record for the most days with big moves at eight.
And so the voting public starts today knowing that stock prices are at higher levels than the October lows, but they are not likely in a better frame of mind when it comes to considering the global economy. Many have already made up their minds as to which candidate is better equipped to navigate these treacherous times, but even to those, there is an understanding that we have never been here before.
The Wall Street Journal noted yesterday that there “are two relatively recent historical precedents for the current election, where a new president will take office amid a serious financial crisis. Whether John McCain or Barack Obama is elected, he will confront ugly economic challenges like Franklin D. Roosevelt did after his 1932 victory and Ronald Reagan did in 1980… the market posted big gains during their overall tenures, though it is unclear whether the main cause was their policies or the steep declines the market suffered before they took office.”
And that’s probably the most confounding issue for any voter: we can’t truly know which candidate will be better, or lucky or unlucky. The best we can do is gather the information and make the most informed decision possible when we enter the voting booth. Of course no matter what, the darned thing will be over and we can get back to obsessing about our investment accounts or future economic data. Yes, it is finally here.
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