Economic Outlook 2005


The old adage goes "It is when a man is well honored and well fed that he is at his most agreeable". Yes, it's true, and I might add "most "corruptible" too. That's why I've thought it's always best to be wary of those who honor and feed you. Unless the honor and the food are sincere, you may find yourself being led down a path that prudence and sound judgement would dispute.

Which brings me to the inaugural.

No, on second thought, maybe it doesn't. After all, what more can be said about the corruption of money that hasn't been said before. It's a Washington tradition, for Pete's sake. The big shots give, the politicians take, and the people are left wondering what hit them. I do wish they could be a little more discreet about it though. It's bad enough to be corrupt, but to be openly corrupt just adds insult to injury. I say let's bring back the smoke-filled rooms and put all this influence peddling and deceit behind the curtains where it belongs.

And that, my fellow citizens, is my plan for America.

So, enough of that. Let's change gears and talk about the economy. This is my favorite time of the year for talking about the economy because it's when all the investment guru's and money managers come out with their predictions for the coming year. Are they bullish or bearish, we ask, and then wait anxiously for the answer as if some Harvard MBA is going to be any better at predicting the future than the local astrologer or palm reader. Still, it's fun because nothing makes a person feel quite so much an insider as talking about the stock market. Well, except for sports, perhaps, and since I don't follow sports much, I'll just stick with the stock market.

Am I a bull? Am I a bear? Is there a reason why someone should care? Of course not. Still, if anyone should ask I would have to tell them - I'm neither. You see I'm what I like to call a squirrel. That is, I'm the lowest, dullest, dreariest form of investor there is. My name is Tony Myers, and I'm a dollar cost averager.

Yes it's true. Now any reasonable person knows that a real investor doesn't dollar cost average, he's a timer. He's in and out of all the hottest stocks, he buys at the bottom and sells at the top, he's got the inside poop and he's miles ahead of everyone else. He's a wheelin', dealin', gamblin' man who knows all the insider acronyms and all the insider jargon and even though he doesn't understand a word of it he lays it on thick just the same. That's a real investor, and I've come across more than a few, especially on the internet.

But me, I'm not like that. I'm like my friend Fred. Poor old Fred, he never has the inside poop. He never knows what the hot stocks are. He never knows where the markets are heading. Yeah, dumb ol' Fred just buys mutual funds. And not the flashy sector kind either, but just the solid boring ones with proven market beating track records. Month after month there's feeble ol' Fred setting aside a portion of his paycheck and buying a few more shares to add to his pile. (Yawn) Geez, that's not real investing - that's like having a savings account.

And yet, as the years go by and Fred keeps adding little by little, month by month, a funny thing starts to happen. The pile starts to grow, and get bigger, and bigger, and as it gets bigger compounding makes it grow even bigger and faster than before, and before you know it Fred has amassed himself one nice little pile of money. But this takes years, of course, and no real investor would ever wait years for his pile to grow. It's got to grow right now! He's looking for the next Microsoft (aren't we all) and he's not gonna sit around and wait for compounding to start kicking in. Poor Fred, he just doesn't get it.

Like I said, I'm a lot like Fred. I dollar cost average and don't worry too much about what the market's going to do this year. If I had to take a guess, though, I'd say it's probably gonna be down some if only because all the analysts and guru's seem to think it's going to do just the opposite. Guess that means I'll be accumulating shares this year, and hopefully treading water till the next upturn comes along. It's not a bad way to invest, really, just kind of dull.

So that's my market outlook for 2005. Stay the course and as long as the economy doesn't fall off a cliff I should be okay. Which doesn't mean I'm complacent.

That's because there's more economic news. For instance I read that some Credit Unions are starting to offer 40 year mortgages. Problem is that extending the term of the loan doesn't really do much to lower the payment, so they aren't garnering much attention. I mean the whole point of a mortgage is to get you into more house than you can afford, so what good is extending the term if it's only going to get you into a house a little beyond your means. We want houses way beyond our means.

So then I read that some lenders are starting to offer minimum payment loans. These are adjustable rate loans that let people just make just the payment they can afford. Sheesh, forget interest-only, we're way past that. Just tell me what you can afford to pay and we'll add the unpaid interest back into the principal. Then, later, when you're making more money (or sobered up, whichever comes first) you can worry about paying us what you owe. And you will owe, believe me. Boy, will you owe. Of course, if the housing market should cool in the meantime and prices start to drop a little, you won't just be underwater - you'll be subterranean.

Which brings me to my point. As we look forward to 2005 and beyond could it be possible that America could be the first country to ever spend their way to prosperity. I mean, it looks like we're certainly going to try. Retail now accounts for almost as much of our economy as industrial, which means buying things is now almost as important as making things. The great experiment were engaged in is to see if through sheer indebetedness we can continue to inflate asset prices and prosper in the years to come. When I look at that and see people doing things like mortgaging their houses to invest in the stock market, well, it's not time to panic yet but, you know, we just may fall off that cliff after all.