The No. 1 question folks ask me these days: When will the U.S. economy hit bottom and start back up?
Some want to know whether to buy a house now or wait a few months in hopes home prices or interest rates drop even further.
Some have seen their stock portfolios drop dramatically. So they want to know if they should shift what’s left to some other kinds of investments or stay in the market in hopes of recouping some of their losses.
I don’t know. Even trained experts who devote their lives and livelihoods don’t know.
My favorite local authority, Ernie Ankrim, chief investment strategist for Russell Investments, wrote this Sunday: “Attempting to time your exit from and re-entry into the stock market based on the perceived state of the economy offers small chance of adding value to your portfolio unless you possess amazing skills in foretelling these beginning and ending dates. Most of us (yours truly included), just can’t do it.”
Still, we all would like an answer anyway, right? So I asked your favorite question of a handful of professionals and amateurs to get their best advice.
The Privateer, an investment management newsletter around for 24 years, bills itself as “the private market letter for the individual capitalist” based in Australia because “it is far easier not to be blinded by the U.S. media when you’re not living right in the middle of it.”
(Apparently we in the media cloud the future.)
So how does www.the-privateer.com answer your question? “If the future was certain, there would be no investment markets and no investment newsletters. It isn’t, so there are.”
Jonathan Burton, a financial columnist for MarketWatch.com, wrote this week: “We haven’t seen the complete capitulation and outright despondency that historically marks a bottom. Not yet. Main Street consumer confidence is at a 40-year low, but Wall Street still has too many optimists.”
Meanwhile, over at the University of Puget Sound, who better to ask when we’ll hit bottom than economics professor Bruce Mann, who has studied the South Puget Sound economy for more than two decades?
“Who knows?” Mann said. “I certainly can’t tell you that. … Calling turning points is always tough.”
Well, how about timing a home purchase for the best deal?
“It’s a crapshoot,” Mann said. “Whether it’s next year or the year after that, who knows? Housing markets can turn on a dime. I’ve given up trying to predict housing prices.”
Well, professor, what can you say authoritatively?
“Right now, given the data that are available, it’s not clear we’re being all that adversely affected” in Pierce County by the broader U.S. recession.
“It doesn’t take a rocket scientist to see” the recession “will eventually take more of a toll out here. … Eventually those impacts will hit us. But they will not necessarily be as bad as they are in other parts of the country,” Mann said. “Things are weakening, that’s for sure. I don’t know where the worst of it is. So I can’t tell you. My crystal ball isn’t unfogged yet.”
Down at the Ruston Way offices of Financial Insights, Dorothy Lewis, president and lead adviser, keeps a crystal ball as the centerpiece of the company conference table.
But she can’t get much out of it either.
“How bad will the recession be and how long will it last? Nobody knows,” Lewis said. “You can’t time the market, no matter what anybody says.”
However, Lewis predicted, the U.S. stock market most likely has entered a multiyear period of modest up-and-down-up-and-down fluctuation much like the 1966-to-1982 period.
“We’re in a ‘rangebound’ market now,” she said. If you chart this recession and the broad stock market’s future reaction to it, Lewis said, it probably will look more like an “L” – deep and long – than a “V,” which would signal an immediate bound-back.
Consequently, if you stay invested in the stock market, Lewis advised, get out of index funds that go up and down with the broader markets, such as the S&P 500. Instead, shift to well-managed stock funds with fund managers that selectively choose the stocks in the fund.
And if you want to buy a house, have good credit and can make a 20 percent down payment, buy it – with a fixed-rate mortgage, not an adjustable-rate mortgage, Lewis said.
“The market’s on the side of the buyer right now,” she said. “If you wait, prices could come down a little more but interest rates could go up, so you’d be paying more in the long run.”
Her best advice?
“Panic,” Lewis said, “is not a strategy. I believe in the American free enterprise system. Enough people will do the right thing for the right reasons. One of the things we, as Americans, don’t have in our DNA, at least for the last 10 years, is patience.”
We’d better learn it.
“It will take some time to fix this,” Lewis said, “but we’ll come out of it.”
Yes, but when, darn it?
Greg Stewart doesn’t know the timing either. But the CEO of Allaura, a start-up tech venture, says his historic amateur analysis of the stock market indicates we won’t hit bottom until the Dow Jones stock market falls to 5,620. That would mean a big drop from Tuesday’s 9,600 mark and a fraction of the 14,164 of October 2007.
Stewart made money by investing in Google just as it became a publicly traded company. And he has raised investment capital for his own Tacoma-based company, which makes several products based on radio frequency identification tags.
For his analysis, Stewart studied the stock market growth since 1900 but removed what he called “the two false economies” of the dot.com boom and the more recent subprime mortgage market.
False economies?
“They were both based on things that had no real value,” Stewart said.
Many dot.coms drew speculative investment capital when they had nothing of value to warrant it – except good ideas and unachievable intentions. Similarly, many people who couldn’t afford mortgages got them anyway on homes priced way too high.
Remove those events from history, Stewart predicts, and the economy has much farther to fall.
“It’ll get worse before it gets better,” Stewart said. “But I could be wrong.”
Finally, Tuesday morning, as Election Day optimism gripped the stock market, the Dow Jones bounced high in early trading, prompting Philip Orlando, chief equity strategist at Federated Investors Inc. in New York to tell Bloomberg News, “The market has come to the conclusion that Armageddon is off the table.”
Maybe. Who really knows?
Dan Voelpel: 253-597-8785
