The U.S. economy languishes in a quagmire of uncertainty and fear. We all need a jolt from Napoleon Hill’s, Think and Grow Rich. We’ve lost our imagination. We depend on government. We think if we just hang on, things will get better; when they won’t, unless we collectively take action.

Actions begin with thoughts, with imagination, with dreams.   Ideas get buried in political gambit. Dreams get squashed by disconsolate pessimism. “I can’t do it” echoes along Main Street more often than, “Let’s just get it done!”

Americans have been here at other times. The Great Depression was the time for despair, and many Americans were desperate.

How much of this information sounds familiar?`
• October “ is the cruellest month . . .” for the stock market.  Time’s cruelty is  T.S. Eliot’s theme in The Waste Land. Time, greed, and fear coalesced on “Black Tuesday” (October 29, 1929).  Stocks lost 38 points as 16 million shares changed owners (the Dow Jones did not trade as many shares until 1968). The Dow Jones Industrial Average declined 89% from its peak and found a bottom at 41.32.
• In the 1920′s, industry and business announced exceptional profits.
• Wages were low and credit purchases were high.
• Real estate prices peaked in 1935 and lost value prior to and after the 1939 collapse.
• 40% of US banks failed.
• Unemployment climbed to 25% in 1933
• During his first year as President, Roosevelt charged the “unscrupulous money lenders” and ” self-seekers” for the economic collapse.
• The American family saw a drop in income from $2,300 to $1,500 annually; that is a 40% decline. A 2009 survey by FinaMetrica indicates that 64% of respondents expect a drop in life style.
• Government initiatives created road and building projects.
• The Dust Bowl of 1935-1938 forced 800,000 out of their homes and off the farm. Did Al Gore catch a cyclical event or an inexorable global catastrophe that might be mitigated?
• The Home Owners Refinancing Act passed through Congress in 1933 helping about one million families get mortgages.

Sounds familiar and worse.

Maybe imagination, hope, belief, expectation, and ideas helped Americans get through the effects of avarice.  Maybe changes are just simple economic cycles. Maybe,  World War II gave Americans focus, hope, and incidentally, economic growth.  Who knows for certain? I think energy and necessity (“the mother of invention) exceeds the impact of circumstance.  What we are matters more than where we are.

Napoleon Hill writes, “Never in the history of America has there been so great an opportunity,  for practical dreamers as now exists….The rules of the race have changed, because we now live in a changed world that definitely favors the masses, those who had little or no opportunity to win under the conditions existing during the depression, when fear paralyzed fear and development. ”

“We who are in this new race for riches, should be encouraged to know that this changed world in which we lives is demanding new ideas, new ways of doing things, new leaders, new inventions, new methods of teaching, new methods of marketing, new books, new literature, new features for the radio, new ideas for moving pictures.”

“Back of all this demand for new and better things, there is one quality which one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it.”

Where are the inventors and innovators? They are doing what inventors and innovators do. They change our world; they lead us because they dream, they innovate, they invent, and they have ”burning desire”.

You may think that America has lost its “burning desire” for invention and innovation;  not so. The Kauffmann Foundation tracks the creative and inventive spirit of America.

Here are recent news stories from the Kauffman Foundatin newsletter:

 
• World Turns On Its Entrepreneurial Axis: During Global Entrepreneurship Week, November 16-22, millions of young people around the world joined a growing movement of entrepreneurial people to generate new ideas and to seek better ways of doing things. Eighty-eight countries across six continents came together during the second annual global celebration of entrepreneurship to inspire young people to embrace innovation, imagination, and creativity.
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• Company Founders Credit Experience, Management, and Luck for Entrepreneurial Success: While fostering new business creation could again help the United States move more swiftly toward ending the current recession, little has been known about the factors that cultivate and support entrepreneurialism. However, a new study from the Kauffman Foundation, “Making of a Successful Entrepreneur,” provides insight into company owners’ views about what influences the success or failure of a startup business.
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• Canadian Student Takes 2009 Global Student Entrepreneur Award: Simon Fraser University student Milun Tesovic, founder of MetroLyrics.com, has been named champion of the 2009 Global Student Entrepreneur Awards (GSEA) and the recipient of $150,000 in cash and donated services that will help support his company and development as an entrepreneur. The GSEA Global Finals, featuring students from eighteen countries, were held at the Kauffman Foundation during Global Entrepreneurship Week.
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• OECD Report on Entrepreneurship Reveals Economic Impact on Firm Formation: The Organisation for Economic Co-operation and Development (OECD) has unveiled the first indications of how the economic slump has affected entrepreneurship in the United States and eleven other countries in 2008 and most of 2009. The report, Timely Entrepreneurship Indicators, shows that firm formation declined and exits increased, which economists say could have significant implications for job creation.
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• College Freshman Show Increasing Interest in Entrepreneurship: The most ubiquitous survey of college freshmen in the United States reveals that interest in entrepreneurship among first-year college students has risen over time. Trends in Business Interest Among U.S. College Students bases its findings on data available through the Cooperative Institutional Research Program, which for forty years has conducted the CIRP Freshman Survey. Find out more arrow
• Partnership to Launch Book Series on Innovation and Entrepreneurship: The Kauffman Foundation, Princeton University Press, and the Berkley Center for Entrepreneurial Studies at New York University have announced a publishing partnership to launch the Kauffman Series on Innovation and Entrepreneurship.
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Do you believe history is repetitious?

Do you believe that what happened then can happen anytime?

Are you dreaming…inventing…innovating?

“Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie.

Fish don’t fry in the kitchen;
Beans don’t burn on the grill.
Took a whole lotta tryin’,
Just to get up that hill.
Now we’re up in the big leagues,
Gettin’ our turn at bat.
As long as we live, it’s you and me baby,
There ain’t nothin wrong with that.

Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie.”

Did you watch the Jefferson’s in their  “apartment in the sky”? Life was good, goofy, and gilded; they “finally got a piece of the pie.”

High net worth families have a net worth of one million dollars. How they got there is a prism reflecting unique ideas, good timing (luck), passion, determination, prudence, and focus.

Keeping their wealth takes momentum, persistence, risk-taking, and entrepreneurial instincts. Adding complex global economic trends, currency and commodity values gives wealthy folks economic vertigo.Wealthy living on the upper east-side or a Tuscan village differs.

A successful, high-net worth hairstylist said to me, “In Italy you live, but make no money. In America, you make money, but have no life. My best times in Italy are sitting at a cafe, drinking coffee, reading the morning paper, and watching ocean waves. When leaving, I say, ‘Thanks…I’ll be back.’”

Making it and maintaining it became difficult and frustrating for wealthy Americans during this recession, just like the rest of us.

Millionaires don’t feel as good about their income:
• Most, like the rest, consider their cash flow worse.
• 54% feel “worse off”
• 32% think this could be a better year (optimism matters)
• 42% think not much’s gonna change
• 26% are downright pessimistic: things won’t stay the same, they’ll get worse.
• 38% shifted funds or will shift funds to certificates of deposit

Read, “Hard knocks for the high net worth” by Investment News, August 17, 2009

And there’s joy at Fenway as  Boston Puts It To the Yankees.

If….you love the Yankees, I understand.

Every morning after a Red Sox game, Lisa’s grandmother tells me about the game. I already know what she tells me, but she gets quite excited at age 95.

She says, “Big Poppie (David Ortiz) clocked his third home run, and things are looking up for him” and “the stock market”, I add.

OK; not so fast, Randall. We have a lot of ground to travel before returning to solid ground. No banners hanging over Wall Street yet.

Just the same, the news is better.

Market analysts support viewpoints with statistics. Most of us find the data dreary. We scan the dull parts faster than a furtive glance.

Baseball stats dull the sound of the bat, the “wave”, and a Fenway Frank. Just the same, statistics and probabilities matter.

This summer, I went to my second Red Sox game. We sat perpendicular to third base. What seats! To my right and to my left, two middle-aged men kept track of every hit and every pitch for every inning.

I asked, “How come you do that?” They both said, “I just enjoy the game more when I do.”

So, for those who enjoy stock statistics, the attached SEI Investments commentary gives you plenty to ponder.

Quiz:  Can you guess the stat before reading the right coloumn? They all seem esoteric to me.

Here’s the article, “Small-Cap Stocks: Too Far Too Fast or Just the Beginning?” by James Solloway, CFA, Senior Portfolio Manager, Global Portfolio Strategies, SEI Investments, Inc.

This cat sleeps.

Dead cat stock market bounces are “A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.” (Investopedia)

If dead cats bounce, the metaphor is useful when predicting stock market trends.

Dead cats bounce along Wall Street after short sellers cover their yet-to-be-owned stock. Their doubt about the market’s continued price-drop prompts them to buy the stock (ie. cover their short position).

Dead cats bounce along Wall Street when investors cover their option positions. Their action may encourage false hopes of a bounce in the markets.

Dead cats bounce along Wall Street when speculating investors throw a dart at Wall Street “blue light specials” (for you KMart shoppers). When checking their purchase in the Sunday papers, they find their shares for sale at a deeper discount.

The dead cat bounce is a silly idiom; no experiment I know of proves a dead cat bounces. No economist or analyst predicts dead cat bounces in the stock market consistently.

“8 Who Saw the Crisis Coming…” (Fortune Magazine, August 2008)
• Sean Egan
• Nouriel Roubini
• Michael Mayo
• Robert Rodriguez
• William Poole
• Richard Baker
• David Einhorn
• Bill Eickman

  “…And 8 Who Didn’t”

• Angelo Mozilo
• Jeff Larson
• Moody’s, Fitch, Standard & Poor’s
• Greenspan, Bernanke, Paulson
• James Cayne
• Chuck Prince, Former Citigroup CEO
• Stan O’Neal, Former CEO, Merrill Lynch
• Zoe Cruz, Former CEO, Morgan Stanley

An ancient test for a prophet requires exact and fulfilled predictions every time, not some of the time.

Stock market moves are not dead or alive, bullish or bearish unless investors make them so. Momentum comes when the greater number of investors take action that opposes other investors. This makes momentum possible.

Most importantly, you don’t know until you presume the cat bounced. Predicting market direction expresses chutzpah blended with keen observations.
You may be right, but the likelihood of accurate and successive predictions confirms the unparalleled dimensions of uncertainty.

Market optimism or pessimism occurs when a mass of people make the result theoretically probable. The determination or prediction of probable outcome never eliminates uncertainty unless there are glaring market anomalies (**see Robert Schiller).

Italian economist Vilfredo Pareto’s principle asserts that 80% of value comes from 20% of those who have the potential to create value. The calculations do not support the 80/20 rule every time, but at minimum the concept retains its assertion.

Therefore, 80% of market analysts are right 20% of the time or 80% of stock market predictions are right 20% of the time. As with all predictions, there’s no certainty of which prediction is right.

For me, further proof that asset allocation, with static weighting and dynamic investment methods works when market anomalies lack affect.

When Vilfredo’s cat died, he did not drop her stiff body out of his bedroom window to see if she’d bounce.

“It is a maxim of empirical economics that if you torture the data sufficiently, they will confess.”
(Stephen A. Marglin, The Dismal Science “How Thinking Like An Economist Undermines Community” (Cambridge: Harvard University Press, 2008) 122.

Empirical economics is distinct from theoretical economic theory or the fundamental distinction between deductive and inductive economic ideas.

We’ll all know in six months.

“If you want to have a better performance than the crowd, you must do things differently from the crowd.” – John Templeton

Templeton is right, but most of us act according to John Emerson’s views posted on Scienceblogs.com.

Economists have always had trouble with bubbles, like the one we just experience (sic), and this is partly because not only are people not totally rational and not only do they not have perfect knowledge, but besides that, they communicate with one another, so the irrationality is not randomly distributed so that the irrational individuals are weeded out, but can pervade a whole population.

What will the maddening crowds do? Uncertainty prevails for the moment. We may presume, I think, that Americans possess an unwavering commitment toward work and prosperity, and these ethics should become evident in the value of stocks.