Sane Dogs, Mad Englishmen

The economy is presently in a troubled state, has been for some times, and I will be the first to say that I do not know whether we are closer to the beginning of the end, or the end of the beginning, or anywhere in between. Nobody else knows, either, or if they do, they're keeping their mouth shut (see previous post) and placing their bets.

That being said, I do feel confident of a few things:

1. It has been a long time since this many people were praying for a recession. Call it the Bush Factor: well over half of our own chattering classes, and probably north of four-fifths of Europe's, will happily seize upon any grim event with which to club the U S of A and its hated Bush regime. Quite simply there are too many people eager to grind too many axes to take seriously coverage such as that seen to the right.

2. As uncertainty grows towards infinity, all possible outcomes are not equally likely. Events do not take their direction from the spinning of a cosmic roulette wheel. The economy is the aggregate of billions of small decisions cascading their way up and up, and in hindsight, clear patterns can always be discerned. Just because we cannot say for certain that a dollar collapse will not occur and precipitate a general unraveling of the current economic order, does not mean that this is anywhere near as likely as a recession of average duration and severity.

3. When the map fails, follow the compass. Every recession of my lifetime has included its own set of utterly unprecedented events: the 70s featured stagflation and the collapse of Bretton Woods, the 80s the S&L crisis, the 90s the amazing runup in stock prices and mass ownership of equities, and now, the subprime debacle. During every bubble, the bulls say there will never be another bear market, and when the bear comes, all the erstwhile bulls say it will be twenty years before anyone is dumb enough to let a bubble like that happen again. It's all bullshit.

The same things were being said in late 2001, with the added uncertainty of the 9/11 attacks still very fresh in our collective minds. Forget speculative investing--we would be lucky to still be alive in five years' time. Google's IPO was still over two years away*, and the conventional wisdom held that it would be a decade--or more--before any company bought computer hardware or software again.

And yet we can see now in the perfect clarity of hindsight that even as the dumptrucks were carting the still-smoldering wreckage of the Twin Towers out of Manhattan's financial district, the helium tanks for the Great Residential Real Estate Bubble were being trucked back in. We moved from one bubble to another almost without pause, but of course, this was totally different because these were houses people lived in, so it would be Nothing Like It Was the Last Time.

Anyway, the point here is that trying to keep up with the headlines is almost sure to lead you to complete and utter panic and insanity, while steering a steady course that assumes that the economy will recover, and that quality assets will return to their long-term values, is as close to a sure thing as this crazy life offers.

* Which happened just under four years ago, in case you need a reminder of how quickly things have been moving.