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| From The Editor: Worthy Notions |
Burn Rate
Dwight Cass
01/01/2005
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Four days before the US presidential election, the Department of Commerce released the last major piece of economic news of the campaign season. Gross domestic product, the agency estimated, was up 3.7 percent (on an annualized basis) in the third quarter. Slower, granted, than the 4.2 percent economists had predicted, but faster than the rate in the previous quarter. Not bad for an economy our size, but certainly not the type of growth that will propel our passive core investment portfolios along at a rate that will maintain and enhance our purchasing power.
 As Worth went to press, stock market returns, year to date, were still negative, despite a post-election rally spurred by lower oil prices. The GDP growth rate and stock market indifference highlight a maxim that has been repeated to the point of near-mantrahood by tweedy economists, ponderous private bankers and, especially, publicity-loving, responsibility-dodging bond fund managers: We are in for a long, long stretch of slow, slow growth.
Its corollaries are legion: Markets will be range-bound. The twin deficits will weigh on our currency. Fixed income will underperform. The credit cycle is at its peak. Volatility is down; the equity risk premium is rising again. Suddenly, the pundocracy suggests, we are living in Germany—or perhaps the Japan of a decade ago—when all we really want is to be Brazilian.
There is some element of expectations management to all this; our bankers are still trying to wring the last vestiges of late 1990s optimism from our bones so we will react with less emotion when they deliver our 2004 financial statements. Even so, the dismal third-quarter trading results of some of the world’s canniest financial firms indicate that the markets are not offering many opportunities.
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