Monday, January 14, 2008

The Case for Recession Is Wrong (Merrill Lynch) |

The Case for Recession Is Wrong (Merrill Lynch) |

I've said it before and I'll say it again, I don't know whether or not we are heading into a recession or not. Donald Luskin doesn't believe we are, but presents some interesting facts about if we did and teaches us how economists can use numbers to know the old saying: Lies, Damn Lies and Statistics.

Luskin points out (after ripping Merrill Lynch) that "Over the pastwar era, stocks have actually performed well during recessions. Over 11 recessions, the average total return for the S & P 500 has been 9.1%." That is a gain, not a loss. The worst case was an 8% loss during 1974-75. This is partially because stocks typically fall before a recession and begin recovering before most people have figured out we are even in a recession.

I don't know if stocks will go up if we have a recession or down if we don't have a recession - nobody knows. What I do know is that a globally diversified portfolio that has low fees, will, end the end win out if you do not panic and just hold tight.

Scott Dauenhauer, CFP, MSFP, AIF