DO YOU BELIEVE IN THE U.S. ECONOMY? — PATH TO LIFE SUCCESS

As a discipline in scholarly form, economics is only two centuries old. Adam Smith wrote his path breaking  book, The Wealth of Nations in 1776.  Adam Smith, of course, represented only a beginning. In more than the century and a half that elapsed from the publication of  The Wealth of Nations to the publication of John Maynard Keynes’ The General Theory of Employment, Interest and Money(1936), economics – or political economy, as it used to be called – went through many stages of development.

WHAT ECONOMICS IS: Everyone wants a short definition of economics, and in response to this demand, there is no shortage of supply. Here are a few such definitions:

1. Economics is the study of those activities which, with or without money, involve exchange transactions among people.
2. Economics is the study of men in their ordinary business of life, earning and enjoying a living.
3. Economics is the study of how mankind goes about the business of organizing its consumption and production activities.
4. Economics is the study of wealth and the global stock markets.
5. Economics is the study of how to improve society.

This list may be a good one, but, Economists today agree on a general definition something like the following:

Economics is the study of how men and society end up choosing, with or without the use of money, to employ  scarce productive resources, which could have alternative uses, to produce various commodities. It studies how the commodities are distributed for consumption, now and in the future, among various people and groups in society. It analyses the costs and benefits of improving patterns of resource allocation. ~Samuelson**Scott

Reading and re-reading the above definition of economics we seem to recognize that we have an opportunity everyday to view an answer to the question; “Do you believe in the U.S. Economy?” Since so much of what drives stock prices is a function of mass psychology we receive a snapshot of confidence (yes, I believe) or lack of confidence (no, I don’t believe) everyday. When we are looking to the future it is sometimes helpful to glean important clues from the past. While each shock to the economy and the stock markets tends to be unique, human nature hasn’t changed much in the last 100 years.

The following are three extraordinary financial and/or political storms in the past 75 years:

• Pearl Harbor. Japan’s surprise attack on Pearl Harbor on the morning of December 7, 1941. On a long-term basis there is little doubt that the onset of World War II helped to snap the American economy out of a severe decade-long slump. But initially, Wall Street reacted with trepidation to the bombing and to President Franklin D. Roosevelt’s declaration of war against Japan. In fact, the S&P 500 was still off by 10% (excluding dividends) six months after the sneak attack. Eventually, however, exhibiting confidence, stocks embarked on a powerful climb, rising by 38% after three years and by 58 percent after five years.
• Kennedy assassination. Stocks closed lower by almost three percent on the day President John F. Kennedy was gunned down in Dallas in November 1963. Because the American economy was in relatively sound condition and confidence was high at the time, the broad equity market recovered quickly. Within six months, the S&P 500 was up almost 13 percent, and the benchmark had risen 20 percent by the first anniversary of the shooting.
• Hostages in Iran. On November 4, 1979 a group of radical students took 66 American embassy workers hostage in Tehran. Over the ensuing 14 months — up until the very moment Ronald Reagan was inaugurated as President on January 20, 1981 — the crisis dominated the news headlines. But while stocks initially responded positively (up 11% after three months), a sharp spike in energy prices fanned inflationary fires that were already building, leading to sky-high interest rates and a severe double-dip recession. Yet the remarkable resiliency of the American economy and high confidence level is evident in one statistic: Five Years after that dark day in Tehran, the average U.S. stock was 63 percent higher.

note: calculations based on Standard & Poor’s Daily Stock Price Indexes; The New York Times Almanac

In the past 12 years we have experienced ‘Times of Crisis”! Every year we extend our heartfelt prayers and condolences to the thousands of victims and their families who have suffered an incalculable human tragedy as a result of the hideous events of  September 11: the collapse of real estate prices, and lower equity prices. Confidence and belief has been shaken!  

Yet, with global tensions seemingly on the rise again and other factors (beyond the current scope of this article) which would lead one to lose belief and confidence….. it is a time when courage, faith, belief, confidence, strength and passion in personal goals, business goals, spiritual goals and entrepreneurial goals is needed now! Sharing of courage, faith, belief, confidence, strength and passion is needed now!

Belief in the U.S. Economy is needed now, belief in the North American Economy is needed now, and because of strong inter-relationships with global trading partners, belief in the Global Economy is needed now! 

Since we are now six days into 2012 your goals, budgets, plans and forecasts are probably written for this fiscal year. I invite you to revisit your goals and ask yourself, your team, your colleagues this question: “Do You Believe In The U.S. Economy?” If the answer is a resounding….YES…you may wish to be more optimistic and express this optimism on paper and further… share your optimism and your confidence!

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Disclaimer: The above information (prices/statistics/percentages) obtained from sources believed to be reliable, but we cannot guarantee its accuracy. The information provided in this article is not a  recommendation to purchase or sell any financial security, suggestion, nor to be construed as such.