Who Do You Believe?

There are three voices that always speak to us—like a little atomic prompt, with positive, negative, and neutral properties to almost every situation we confront. Like little angels on our shoulders, one whispering, “yes,” the other whimpering, “no,” and in the middle, the anchor of neutrality vacillating, “perhaps.”

Last week former Fed Chief Alan Greenspan came out of hibernation, saw his shadow, and predicted the US economy had a 30% chance of hitting the Big R (recession) within 6-months, or at least before the end of the year.

An economist whose opinion I respect, Dr. Irwin Kellner, respectfully disagreed with the retired Fed Head, and said there is still too much liquidity, too little volatility (huh?) and still plenty of altitude in the markets. Well, what he said was that you or I or our businesses can still easily borrow to meet our needs (liquidity).

Despite the on going war in Iraq, the turmoil in Iran, and bizarre side shows in Korea and Venezuela, nothing has shaken the comparative confidence of Wall Street’s movers and shakers. There are concerns, yes, as fuel prices begin to creep up again, and the housing market softens; we’ve weathered those problems before. Nothing shocking.

Sure, last week’s market drop of 400+ points was a news maker. So was the drop following 9/11, the movement in October 1987, and The Crash of 1929. But Kellner’s comfort food comes from the observation that the Dow is still higher today than it was this time last year…and the spikes on the grid are just that—valleys between the peaks.

Not saying there’s not going to be a recession—economies and markets are cyclical, and such an event will occur. But it will take more than last week’s confluence of events to start things skidding out of control.

That being said—what areas did you see exposed last week when the music stopped? That was your warning flag—and an opportunity to shore up the weak spots in your portfolio.