Gongol.com > Radio > Show Notes > November 23, 2008

The Brian Gongol Show on WHO Radio
Brian Gongol



Let's get some serious perspective on the current economic situation:

The last time the Dow Jones Industrial Average, NASDAQ, or Russell 2000 indices were at today's levels, it was 2003. The S&P 500 is down to figures we haven't really seen since 1997.

Meantime, the economy as a whole is almost exactly flat -- not getting bigger, not getting smaller. And in the worst-case scenario put out by any mainstream economists, it's hard to imagine the the economy shrinking by even 5%. That would make it the same size it was in 2005. It would take a full-scale shrinkage of the entire economy by a full 10% to take it back to the size it was in 2003. To get back to 1997 levels, the whole economy would have to shrink by 25%.

Now, for reference, during the Great Depression, the economy shrank by 9% from 1930 to 1931, 6% from 1931 to 1932, and 13% from 1932 to 1933.

So here's the reality check: Unless you think that the current situation is at the Great Depression level or worse, then you'd pretty fairly have to conclude that the stock market is overreacting -- badly -- to the economy as a whole. The manic-depressive Mr. Market has already discounted things back to 2003 levels or worse, even though it's hard to find anyone who seriously thinks we're even going back to 2005 levels in the economy as a whole. The IMF doesn't even think we'll slip by a full percentage point. It's pretty much impossible to be happy about watching your portfolio shrink by as much as it probably has, but if you can take a deep breath and see the big picture, this may be a fantastic time to be an investor.

(Speaking of going retro, the #2 item on today's Google Trends list is New Kids on the Block. Really.)

The Model T of bionic limbs is already available...the I-Limb is on the market, and it's only one of a whole bunch of remarkable new advances in health care that are going to make life better for all of us.

Meanwhile, Google is fancying up Gmail, and Firefox is getting upgraded to meet the latest security threats. And that news brings us back full-circle to another reason it's a bad idea to get paranoid about the economy. Suppose the nightmare scenario comes true, and we slip back to 2003 levels in the economy...or even something worse. Even if that were to happen, we still haven't lost all of the technological advancements made in the meantime. It's like asking whether you'd rather drive on a wintery road as a 16-year-old with a rear-wheel drive sedan from 1984...or as a 35-year-old driving something with limited slip differential or 4-wheel drive? Even if the economy takes a stumble, we still have the benefits of experience and technology to help us recover.

Instead of obsessing about whether the stock market has risen or fallen on a given day, we need instead to pay more attention to the risks posed by falling oil prices to the stability of places like Russia and Iran. There are some real nightmare scenarios that could emerge from the next few months: Russia might decide to hold Europe hostage over natural gas prices in the dead of winter. Iran's government may overreact to public hostility and hasten its own demise -- possibly leaving its nuclear program in uncertain or radical hands.

In the midst of all the questions about what to do with the economy, we have the matter of a possible bail-out for the Detroit automakers. In a day when we already have a $10.655 trillion Federal debt, the question of a bail-out can't be considered independent of the other things we could do with the money. What would $25 billion do if applied to solar-power development? Cancer research? College scholarships? Roads, bridges, and dams? The money that might be spent on a bailout for automakers would have to be borrowed, and it absolutely must be considered within the context of what a borrowed $25 billion could be spent to achieve otherwise. (Full disclosure: As of this moment, Brian Gongol drives a Chevrolet and has family members employed by the Big Three automakers...but he also owns stock in Honda and Toyota. In other words, I want Ford, GM, and Chrysler to survive and thrive -- but I don't consider it a safe bet that they will.)

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Gongol.com -- posted 2008.11.23