Wednesday, September 12, 2012

Are You Better Off? You Betcha!

From Bloomberg, Are You Better Off? Take a Look at the Stock Market:

"Do you remember the news four years ago? Banks collapsed, markets cratered, companies struggled to make payroll and millions of people lost their jobs. Your retirement savings were decimated, the value of your house plunged, credit was unobtainable. Politicians dithered and economists argued. Only confusion prospered.

Against this background, it’s surprising to hear Republicans returning to Ronald Reagan’s classic debate question: “Are you better off than you were four years ago?” To anyone whose memory extends a full electoral cycle, the answer is clearly yes. . .

When assessing our politicians, what matters isn’t just the here and now. It’s at least as important to consider how well we are set up for tomorrow, next year and the decades that follow.

This distinction is particularly important in assessing the aftermath of the last recession. The anxiety that gripped us in late 2008 wasn’t born out of a typical cyclical decline that hurts for a year or two before the economy returns to growth. Rather, it was a fear that something more fundamental had changed, altering our whole economic trajectory.

Only a forward-looking indicator can pick up both this fear and its ultimate resolution. Unfortunately, most economic statistics tell us only what happened last month, last quarter or last year.

The stock market, by contrast, is obsessively focused on the future. When investors decide whether to buy a company’s stock, they aren’t just thinking about its current earnings (if they were, a company like Twitter Inc. would be worthless). They are trying to figure out what its future earnings will be, and what that stream of income should be worth today. Their collective judgment, while far from perfect, tells a compelling story about how America’s prospects have changed over the past four years."