AN ERA OF UTTER UNPREDICTABILITY
Can an entire nation get whiplash? You bet. Just look around. In the flash of a few months, the stock market goes from euphoria to panic back to euphoria again, taking millions along for the angst-ridden ride. One day, there's a liquidity crisis. The next moment, companies are asking, "What credit crunch?" In September, the President looks like he might be impeached. By November, Newt Gingrich is out on his butt. TV pundits predict a major sweep for Republicans in Congressional elections. Voters prove them hopelessly wrong. In the fall, America appeared to be entering an Age of Uncertainty. As the countdown for yearend 1998 begins, it is clear that the U.S. is really in an Era of Utter Unpredictability.
What's so confusing? Take your pick. The stock market hits new highs in July and then drops 1,800 points just like that. Everyone is shouting "Sell! Sell!" because there's a meltdown in the financial system. But it turns out there isn't. Spreads open and capital markets choke, but banks pick up the slack and loans keep flowing. No crisis. So the market switches gears and levitates up to a record high in the space of seven weeks. Wait a minute. Don't stock prices depend on profits? Yet the Commerce Dept. reports that aftertax corporate profits are down for three quarters running. But are they? Grab a calculator, check the stats, and it turns out that the median company in the S&P 500 index actually reported a nice 9% year-over-year gain in the third quarter (page 122). So the market isn't crazy, right? Whiplash.
Want more? Take mergers and acquisitions. They were supposed to be dead. The cycle was over. There wasn't any financing left. Then came Merger Monday. No sooner had the window of opportunity opened again, with the Dow Jones industrial average blasting into new territory, than mergers totaling more than $42 billion poured through in a single day. Some 22 companies said that they were talking about getting together in some fashion, and a record 10 deals exceeded $1 billion. Whiplash.
Or consider Asia. It is supposed to be in a deflationary recession so bad it's the closest thing to the Great Depression. Conventional wisdom holds that nothing can be done until Japan pulls itself out of eight years of stagnation. China is on the verge of devaluing, making matters worse. Forget about it. Word is that Asia has miraculously "bottomed," without any help from Japan. Exports are up, manufacturing is rising, the Hang Seng and other Asian stock markets are buoyant. China never stopped growing. The Asian Depression? It's over. Whiplash.
The U.S. is an even greater surprise. Economic growth was supposed to be slowing down by now. Asia, inventories, credit crunch, the dollar--take your pick for a reason why. It isn't happening. Third-quarter gross domestic product came in at a galloping 3.9%, practically double the consensus forecast of 2.2% at the beginning of the quarter. And the fourth quarter is looking pretty good, too. Where are all those tired consumers, all spent out, in hock, and ready to call it quits? They're in the stores buying up a storm, happy as clams. Whiplash.
In unpredictable times such as these, today's optimism may be just as fleeting as yesterday's pessimism. The only sensible stance is caution. And humility.