Who’s afraid of the R word?

Marketplace Staff Dec 10, 2007

Who’s afraid of the R word?

Marketplace Staff Dec 10, 2007


Scott Jagow: The R word has come up an awful lot lately. Recession or not? It seems everyone has an opinion. But Allan Sloan with Fortune Magazine says investors really shouldn’t care whether the economy goes into recession. Allan, why not?

Allan Sloan: Because if we’re in a recession now, we won’t know about it for at least six months — at which point what good does it do to know? And to me, it doesn’t matter — if you’re investing, you’re investing now. You’re not investing based on what someone may figure out some time next year happened in October or November 2007.

Jagow: But aren’t we hearing people on Wall Street talking about recession?

Sloan: Absolutely. And my favorites are the ones who say, “Well, there’s a 50 percent chance we’ll be in a recession, a 40 percent chance.” It’s like the people who say there’s a 30 percent chance of rain, there’s a 40 percent chance of snow. And whatever happens, they’re covered.

Jagow: But when you look at the symptoms of a recession, aren’t those the important part that investors do need to keep an eye on?

Sloan: Well absolutely. And that’s why I say . . . a recession is, to give you the very short version, it means a slowing down, for more than just a minute, of the economy, in a variety of ways. That’s what a recession is. And sure, if the economy is now slowing down, that’s something you obviously have to take into account when you’re investing, as I’m taking it into account. But the question of whether we’re in a recession or not is not relevant. You have to look at the economy, but the word “recession” is not helpful.

Jagow: OK, so if we toss out the R word, what should investors be thinking about?

Sloan: Well, it’s what I call the “F” word, though not . . .

Jagow: Wait, no . . . oh! We can’t do that words.

Sloan: No no, this is a different word Scott! It is not, it’s not the conventional F word. It’s foresight. Foresight is what you need.

Jagow: And by that you mean . . . ?

Sloan: Well, you have to look ahead to what you think is coming. As opposed to a recession, which by definition is something you find out after the fact that it’s begun. And usually by the time you find it out, the recession is either over or almost over. And historically, that’s been the case.

Jagow: All right, Allan Sloan from Fortune Magazine, what’s the final word?

Sloan: It’s the G word, which is “goodbye,” it was fun.

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