In these difficult financial times, it would be nice to have a voice of reason.
What can I do for you?
Are you the voice of reason?
Try me.
How well do you know the stock market?
I am an expert.
OK. Here’s what I don’t get. Remember when we had really high inflation?
That was bad.
Exactly. So now we have really low inflation. Shouldn’t that be good?
That depends.
Well, remember when we had really high unemployment?
That was bad.
Exactly! And now we have really low unemployment. Shouldn’t that be good?
That depends.
Aren’t we always reading about how corporate profits are going up and up?
That is true.
And that’s good, right?
That depends.
Well, what about mortgage rates? They’ve gone way down.
That is true.
That’s good, right?
That depends.
Are you sure you’re an expert?
Of course. Keep going.
The stock roller coaster
OK, the stock market. Just a few months ago, it was at an all-time high. Now it’s crashing down around us. In the last three months, it has lost about 20 percent of its value. That’s bad, right?
Not necessarily.
Is it a correction? Did we have this coming as punishment for our greed?
Not necessarily.
Well, have we seen the lowest point?
Not necessarily.
You mean it could go lower?
Not necessarily.
Here’s another thing I don’t get. Some of these stocks, like Dell Computer or Microsoft, they’re phenomenal companies making tons of money, right?
That is correct.
So if their futures are so bright, why are they getting hammered? Shouldn’t great prospects keep their share price up?
Not necessarily.
You mean because of Japan? Because its economy is faltering?
That doesn’t help.
But hasn’t Japan been in financial trouble for some time?
Yes, it has.
Then why all of a sudden are Japan’s problems sinking us?
Hard to say.
Or Russia. Come on. How much business do we do with Russia?
Almost none.
Then why should we care what happens over there? Or Brazil? Or Latin America? Why is our stock market so reactionary to places like that?
Good question. Hard to say.
The hedge game
Listen, you’re not making things very clear. I thought you were an expert.
What don’t you understand?
Well, OK, this hedge fund fiasco. It’s called Long Term Capital Management. It’s managed by some of the brightest folks in the world. And it almost crashed, right?
That was scary.
Until a bunch of rich banks bailed it out with $3.6 billion.
That is correct.
But isn’t a hedge fund just a bunch of rich folks betting which way the markets will go?
In essence, yes.
So banks, who get a lot of money from middle-class people, bail out a hedge fund full of rich people, who, through greed and bad judgment, are about to become poor?
In a nutshell, yes.
I’m lost.
So is the hedge fund.
So wait a second. Our economy is good, our interest rates are low, most of us are working, we can afford new homes, we don’t worry about inflation, our companies are cutting costs, and our banks have enough money to bail out a bunch of millionaires?
Right.
And yet the stock market’s a disaster?
Also right.
You know what it sounds like to me? It sounds like the economy can be analyzed by just about anyone who is willing to say “That depends” or “It’s possible” or “Not necessarily.”
Exactly.
Thanks. You’ve been a big help.
Don’t mention it. Can I borrow a dollar?
To leave a message for Mitch Albom, call 1-313-223-4581.
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