Contact Us

News

 

A New Era of Risk


We've seen some impressive rallies in stocks recently, and while that's welcome news, it's too early to cheer. There is still plenty of room for concern about the market and the economy.

In terms of the economy, we've had a double dose of bad lately: Government data were revised to show that the economy shrank for three consecutive quarters in 2001, two more than originally reported, and the Federal Reserve acknowledged a risk of weakness when it decided in August to change its bias on interest rates, while stopping short of easing rates again.

Compared with the bionic growth and market returns of three years ago, the new reality is frustratingly unpredictable and fraught with combinations of risks once unimaginable. The risk of a major domestic terrorist attack. The risk of an epidemic of corporate accounting scandals. The risk of waging war with Iraq without the support of many of our longstanding allies. The fact is, we've entered a new era of risk, a zone that for many investors is unfamiliar, uncomfortable and--unfortunately--unlikely to change anytime soon.

The good news (for now, at least) is that the economic recovery appears to be on track...

Economist Lakshman Achuthan says a double-dip recession seems unlikely this year. His group, the Economic Cycle Research Institute, produces the Weekly Leading Index. Achuthan tells me that the index currently looks similar to how it looked a decade ago: "There was a big double-dip/triple-dip debate back then, and this index did slip, recognizing the anemic pace of the early-1990s recovery but not forecasting recession in the end..."
VIEW THIS ARTICLE ON MONEY MAGAZINE