When I was a child I loved to experiment. I remember getting a chemistry set from my parents when I was barely in Junior High School and I could not believe my good fortune. Later, in high school, when given a choice to make most anything, I decided to make a Morse code machine (and it worked!).
I remember participating in all kinds of experiments in high school. I attended the Bronx High School of Science, and its name tells you a good deal about the school. With its heavy emphasis on math and the sciences, experimentation was deeply embedded in the DNA of the school.
However, as we got older, experimentation became less important. We don’t have those chemistry sets anymore, nor do we sit in classrooms mixing fascinating compounds to create some surprising effect. The further we go in life the more we are taught to go along, to conform. By the time we get our first job out of school we want desperately to fit in and not make waves. All of this has the effect of making us less likely to come up with some great new idea or breakthrough. But of course, senior managers of large firms and small understand that experimentation—innovation—is the key to the company’s future. Here are a few examples of firms that have experimentation built into the fabric of the organization:
If it isn’t Broken, Fix it Anyway: Proctor & Gamble has been a top-rated company by most every metric for decades. However, when the 160-year old firm brought in a new CEO in 2000 he was determined to find a better way of doing things. One practice he set his sights on was the way the company did research. For years it would do blind tests (Tide vs. Wisk) by giving consumers these products in unmarked bottles to take home. It also did one-on-one interviews and focus groups. Many people felt that was more than sufficient for testing its products. But its new CEO insisted on taking the process further by making sure that P&G researchers go into the homes of consumers and observe the way these products were being used and ask questions in real time in the laundry rooms of customers, so says Robert Herbold, who was SR VP at P&G (and later became Chief Operating Officer at Microsoft). Even P&G’s CEO, A.G. Lafley. got into the act by visiting the laundry room of a consumer when traveling in South America. That story spread like wildlife around the company and sent a powerful message.
Challenge the Status Quo: AutoTrader.com is a firm that teaches its people to come up with new ideas all the time. CEO Chris Perry says his “most powerful leadership technique is to tell everyone who works for AutoTrader.com that one of their main responsibilities…as an employee is to constantly challenge the status quo and relentlessly work to improve whatever product, process, or system they may use to get their work done. ”Our company grew from zero to $100 million in revenue in just five years,” Perry told the author of the Leadership Secrets of the World’s Most Successful CEOs. “And the main source of our success was the way our employees took the initiative to reinvent their part of the company at least once every six months.”
Innovate. Rinse. Repeat. Innovate Some More: That could be the mantra of one of the world’s most innovative firms, Google. The company is an innovation machine. Its founders insist that its engineers take one day off each week to work on their own pet projects. There is also an “ideas mailing” in which anyone in the company can contribute new ideas and be sure that they will get a hearing. It even searches for innovative types when hiring. Why a willingness to experiment? According to VP Jonathan Rosenberg, “Non-routine problems call for non-routine solutions and there is no formula for success: it’s easy to educate for the routine, and hard to educate for the novel,” he explains.
Those are just three examples of companies that “get it” when it comes to the importance of experimentation and innovation. How does your firm stack up in this area? Does your company behave more like a Google, or more like a company that is afraid of change, improvement and innovation?
Much has been written in recent years of the death of hierarchy and the end of the “imperial CEO,” the chief executive who resides in an ivory tower screaming out his orders to thousands of minions. Peter Drucker was one of the first to recognize this more than six decades ago—declaring that no organization can survive if it requires supermen to manage it. He described the job of a CEO as complex as running an opera or conducting a symphony.
In today’s turbulent workplace, the organizations that will fare the best are those that understand that collaboration is the key to success. One such company is Sungard, a global leader in software and processing solutions. Its CEO, Chris Conde, understands how the role of the CEO must be redefined, as he explains here: ”If different employees can share information with each other, they do not need to rely on their bosses to do that,” he said. “The imperial CEO has to disappear—the CEO has to disappear—the CEO now has to ensure that everyone play their part to the full.” The CEO is like a conductor—he conducts and orchestrates a system. ”
Conde adds “It is very arrogant to think you can make better decisions than the thousands of people below you. The role of the boss is to make a handful of decisions that cannot be made by anyone else and to maintain the collaboration systems. I really think the rise of these collaborative systems is redefining organizational structures and the role of the CEO; they are the last nail in the coffin of the imperial CEO.”
So what does this mean for you? It means that you must work closer with colleagues than ever before. If you work in an organization, you cannot do it alone. Helping your colleagues doesn’t mean doing their work for them. As in tennis, stepping into your partner’s half of the court and hogging their shots is just as counterproductive as thinking only of your own shots and flubbing those.
A well-oiled machine is one that runs well because it has a minimum of friction. You can oil the machinery of your department by doing things to reduce friction.
In the workplace you can prioritize your requests to others in and out of your department or silo. If something is urgent, say so. If something is not urgent, then say that. This will help your colleagues do their job in a way that maximizes their success. If you go around claiming that everything is urgent people are going to stop believing you and they will do nothing quickly. On the other hand, if something is urgent and you don’t tell your colleague in marketing, IT or whatever department is involved, you may be setting her up to make a career-damaging error by missing a critical deadline.
Sharing information is another way to help your operation run smoothly. Don’t try to gain power over other people by withholding information. They will be able to make better decisions and deliver better results if they understand the bigger picture.
The key takeaway? CEOs and other high-ranking executives are beginning to understand that they must rely on and empower people three or four levels below them to make important decisions. I have worked in organizations in which my boss had to go to his boss to get permission on every decision, even the minor ones. I have also worked for managers who have been empowered to make most every decision on their own. The first situation was a prescription for disaster as decisions were slowed and bureaucracy ruled the day. The second situation ensured fast decision-making, zero bureaucracy, and great success.
The imperial CEO is dead, and the sooner managers understand this, the faster their organizations will shed the shackles that have imprisoned them, and the sooner speed, simplicity and self-confidence (Jack Welch’s formula) will level the playing field. It is only when managers acquire these important traits that they will be able to compete with far more agile firms not hampered by the bureaucracy of the old and outmoded processes that have kept them back for so long.
On Tuesday, Barack Husein Obama became the 44th president of the United States amid fanfare that was simply unprecedented. Millions flocked to the Washington and filled the streets of Washington in numbers that were simply breathtaking. Thousands showed up as early as 3:30 a.m. to fill the Washington Mall to see—and hear—history in the making. When you consider that African Americans were still being asked to sit in the back of buses only five decades ago, it is quite an extraodinary achievement to inaugerate our first African American president in any of our lifetimes. After 43 white men it was history that shall be heralded for generations to come, and one could not help but be moved by the stunning events.
I take that back. There is one group that failed to be moved, and that was the traders on Wall Street. While all of the presidential events were playing out amidst much enthusiasm, captivating much of the country, far more people and institutions were selling stocks rather than buying them, sending the Dow Jones Industrials plumetting by a whopping 332 points or by more than 4 percent (the S&P and NASDAQ fell by more than 5 percent). It was the worst stock market performance on inauguration day ever.
Forget the fact that President Obama has promised an $800 billion rescue (or stimulus) package. Forget that President Obama will get the other half of the TARP (the bailout money) to throw at the financial crisis (and demanding more accountability with this portion of the money). Wall Street, the most skeptical street on the planet, could care less.
There were other ambiguities as well. On a day that Obama spoke of responsibility, bringing people together and bipartanship, a single Republican held up Hillary Clinton’s confirmation as Secretary of State. Republican Senator John Cornyn of Texas made sure that Clinton would not be confirmed on Tuesday as originally planned. The fact that she would undoubtedly be confirmed in a day or two is beside the point: there are still members of congress playing politics on a day that was supposed to go off without a hitch.
We live in the age of ambiguity, and we had better get used to it. Things will only get murkier in the days and months ahead.
The rise in the popularity of business books is what management guru Peter Drucker might have called both a “recent phenomenon” and “totally unprecedented”. One of the most interesting things about the business book market—despite its incredible resilience—is how it has tended to fluctuate with the stock market and the overall economy.
Take the lackluster 1970s, for example. During that decade, before the business book revolution, companies hunkered down, just trying to survive Watergate, an oil embargo, recessions, low productivity rates and double-digit interest rates. Few of us in business book publishing can name even one great business book to come out of that uninspiring period. The stock market lost well over half of its inflation-adjusted value between 1968 and 1974, and another six percent by July of 1982 (the Dow hovered around 800 in mid-’82). The bears ran rampant on Wall Street for 14 years.
The next decade did not start much better—but then came 1982. In retrospect, we know that was the beginning of everything. That was the year that ushered in the greatest bull market in history—catapulting the Dow from 800 to over 13,000 and then 14,000 by 2008. To repeat that percentage increase the Dow would have to exceed 175,000 in a similar time span. That was also the year that Peters’ and Waterman’s In Search of Excellence was published, as well as Blanchard’s and Johnson’s The One Minute Manager.
For years after that hundreds of authors pitched their book proposals by telling me that their book was “the next In Search of Excellence.” That was not the right way to go.
I didn’t publish a single book that was pitched to me as “the next In Search of Excellence.” Editors and publishers look for new and fresh ideas, not recycled books pretending to be something else, especially when they use a “phenomenon book” as a point of comparison. In my parlance a ”phenomenon book” is one that defies all odds to sell in the millions of copies, when the average business book probably sells fewer than 3,000 copies per year. Books like Who Moved My Cheese, Reengineering the Corporation and The 7 Habits of Highly Effective People are phenomenon books.
The next year, 1983, was another great year for business books, as Naisbitt’s Megatrends and Iacocca topped best-seller lists. Before long business books dominated non-fiction best-seller lists. Iacoccca went on to become the best-selIing business memoir of all time, selling an incredible five million copies, while In Search of Excellence sold more than three milllion copies in its first four years. Excellence was glued to the New York Times Bestseller list for three years, and the book became “the most widely held” of all library books—in all categories—between 1989 and 2006.
That was it. There was no going back. The business book revolution was in full sway, and business emerged as a dominant non-fiction category that persists to this day. (In a future posting I will include some firm numbers to back this up).
An interesting footnote to all of this: Peter Drucker, now commonly accepted as either “The Father of Modern Management” or “The Inventor of Management” wrote his first business book in 1946, after spending two years studying the inner workings of General Motors. That book—Concept of the Corporation—is what I call ”the grandfather of the modern day business book.” He wrote half a dozen books by 1982, but Drucker was never considered cool or hip, and none of his books ignited the type of sweeping movement that was sparked by In Search of Excellence. I will include many more facts on Drucker in future blogs, especially as we get closer to publication of Inside Drucker’s Brain.
One of the ways I have always gotten ahead in business is to make sure that I thought of myself as a “number two,” as a sort of partner to my boss. As a middle manager for many years, regardless of what the org chart said, that’s how I regarded myself and my job. Never mind that I wasn’t always the number-two manager in the division, that was very much beside the point (although it is worth noting that for much of my career I did report to the head of whatever division I worked for).
The primary job of the number two is to ensure the success of number one. If number one succeeds, we all succeed, I reasoned. If I played an instrumental role in helping my boss to achieve his or her goals, I thought, the more invaluable I would be perceived and the more secure the position would be. Does this mean that I ignore my own personal performance goals? Hardly.
I always memorize my goals as soon as I get them, and at some point early in the year, I ask my manager the specifics about his or her goals. It doesn’t take a genius to recognize that the goals of the division president were basically the same goals of the division, so every manager I have ever worked for was eager to disclose his goals to me and the rest of his direct reports (and often to the rest of the division). Once you know your boss’s goals, then you must commit to help him or her make those goals a reality.
In the publishing business, as in almost all businesses, the most important goals are quantitative. They include a top line revenue number and a bottom line profit number. Those were always up and away my boss’s two primary goals as well as the two key divisional goals. There were other goals—such as the “number of books to be published in a given calendar year”—but that goal was almost always less important than the other two goals (I say “almost always” because I had one manager who seemed completely obsessed with the number of books we published).
So how do you make sure that you are a strong Number Two? Consider the following:
* Acknowledge that being number two is as much a mindset as a methodology: Being a strong number two means adapting the mindset first. It means adjusting your thinking to encompass the reality that you have, in essence, given yourself an extra set of goals to worry about.
* Use as little time and resources of the unit head as possible: This means being decisive and relying less on your boss. Remember the oft repeated phrase that it “is better to ask for forgiveness than permission.” Remember that your boss’s time is one of the most critical and costly assets of the division. Rather than seeking “face time,” do the opposite. Let your great work speak for you.
* Look for any opportunity to help your boss achieve big things: I am not talking about jockeying for position or playing office politics. This means that you will have to think bigger and broader than yourself. It may mean subordinating your own goals to your manager’s goals when the right opportunity comes along. In my full time job in publishing, it might mean volunteering my time to help my boss with a manuscript or book that would help the division but one that I receive no credit for.
In conclusion, even if you feel overwhelmed by your own workload, consider being a strong Number Two anyway. You might find it fun and challenging at the same time, while giving you a different view of your unit than you might have by focusing only on your own goals.
In Inside Drucker’s Brain I include a most remarkable story about two of the people who had their greatest influence on Peter Drucker’s life and his career choices. As we are still in the first days of a New Year—which to me means deep reflection—this is a particularly timely tale.
In addition to being a gifted and prolific writer of 38 books, Peter Drucker was also a first class educator who taught for many decades. Along the way he turned down a Harvard teaching offer (and Stanford as well), explaining to me that he did not believe in Harvard’s case approach (“I have no use for cases personally,” he told me). So Drucker was happy to teach at Bennington College (1942-1949), and NYU (from 1950-1971), before founding one of the nation’s first executive MBA programs for working professionals at the Claremont Graduate School of Business in California. That school was later re-named—the Peter F. Drucker Graduate School of Management.
I always wondered how Drucker got into teaching, and he told me—like so many things in his life, it happened by accident. But he had sworn that he would have never got into teaching at all if it wasn’t for the two greatest teachers of his life, two teachers that he had at exactly the same time. I figured it must have been some of the great college professors he had on his way to get his PhD—but I was far off the mark. I was stunned to learn that the two greatest teachers of his life—the two teachers responsible for Drucker’s decision to become a professor—were two teachers that Drucker had in the fourth grade! Their names were Miss Elsa and Miss Sophy—and they were sisters.
Miss Elsa, Peter’s homeroom teacher and the principal of the school, told Peter that she would meet with him each week to give feedback and check his progress on a variety of subjects. If a student did something totally out of line, like cheat repeatedly, Miss Elsa would give that guilty child a “tongue-lashing that flayed us alive,” said Peter. But that kind of dressing down was never done in front of others, it was always done in private.
Peter thought he was terrible at math but Miss Elsa set him straight, explaining to him that he was not bad at math at all. It just was that he didn’t check his work so he made careless errors. That helped him to turn his math grades around.
Miss Elsa would focus on the strengths of each of her students, and then set both short-term and long-term goals to develop those strengths. Then, and only then, would she address her student’s weaknesses. She then provided the kind of feedback that would allow students to improve their own performance and “direct themselves.” This would later become a key Drucker tenet—he contended that employees should be given the feedback to direct themselves, for “all development is self development.”
Miss Elsa knew every child’s name and every child’s characteristics, and above all, his or her strengths, and within the first week of school! ”We did not love her, but we worshipped her,” Drucker asserted.
Miss Sophy, Miss Elsa’s sister, was almost the polar opposite of Miss Elsa. She could not remember a single student’s name, yet there was always one in her lap. Children brought Miss Sophy their problems and triumphs, and she was always there for a hug, praise or congratulation. She taught arts and crafts out of a magical studio that exploded with color, a room that had everything a child could hope for—including paints and easels, crayons, brushes, sewing machines, materials, hand tools, and more. Miss Sophy would let children try out most anything, “always willing to help but never offering advice or criticism.”
Miss Sophy taught her students “non-verbally and silently.” When a child was drawing or wood-working, she would watch for a few moments before taking her very small hand (she was a tiny woman) and guide the child’s hand until he or she got it. Or if a child could not draw, she would take the crayon or brush and paint “a purely geometric figure that bore all the elements of a cat.” Suddenly the student would see the cat amid the shapes and start laughing. This would bring a smile to Miss Sophy’s face, which was the “only praise she ever gave, but one that was pure bliss to the beholder.” She never, ever criticized a child, no matter what.
Drucker called Miss Elsa “the very perfection of the Socratic method,” and Miss Sophie “a Zen master.”
In the opening days of 2009, it is good time to reflect on how you got to where you are now. Who is your Miss Elsa and Miss Sophy?
Since, in the last two blog posts, I predicted that we would surpass Dow 10,000 and Dow 11,000, I feel compelled to add a few words to this discussion just to make sure that there is no miscommunication.
A word of caution first: I am not a financial professional and do not play one on TV or anywhere else. So please consult with one before making any big move in the markets or anywhere else. The opinions provided in this piece are strictly my own—a financial amateur—and should be taken as such. The fact that they have been informed by some of the best financial authors out there does not negate the need to consult with a financial professional.
Let me begin by saying that no one has a clue which way the markets will go from here. I get the feeling that we are at a crossroads and will either be heading significantly higher or, if not, will tank again and test the lows of about 7,500 in the Dow that we saw in late November 2008. The purpose of this post is not to tell you which stock or mutual fund to buy (although I will mention two funds below, something I will do this one time only), but to help make sure that the distribution of your assets is appropriate for you.
It is not which stocks that you own that will be the key determinant of your financial future. That will of course make a difference, but 95 percent of how you do in the future will be determined by something called asset allocation.
Asset allocation simply refers to how you will divide your money among something else called ”asset classes.” Asset classes include stocks, bonds, cash and real estate. The biggest money mistake people make, by far, is that they focus too much on an individual stock or fund (or group of stocks), and they don’t keep the big picture in mind (that is, the entire asset allocation mix). For the money that you do have invested, one very good rule of thumb comes from John Bogle, the founder of Vanguard, the mutual fund company. He recommends, as a very general rule, that you divide your investment among stocks and bonds depending upon your age: a 40-year-old should have 40 percent of their investments in bonds, an 80-year-old should have roughly 80 percent of their money in bonds. Whatever your age, that’s about the percentage of your money that should be in bonds.
Some specifics: while I do own a few stocks, I feel that there is no reason to own any individual stocks. Rather than gamble on a few stocks that may gyrate wildly—who could have seen the end of Bear Stears and Lehman Brothers—own the entire stock market. You can do that by purchasing one mutual fund that owns the entires stock market. It is a Vanguard fund (and yes, one that I own), called the Vanguard Total Stock Market Index (VTSMX). Today that fund sells for about $22, which means for $22 per share you can own a piece of the entire stock market– that is, a tiny portion all of the thousands of stocks on all of the exchanges. That would be a great place to park your long term money—the percentage that is discussed in the paragraph above.
As for where to put your bond money, there is one fund which has performed remarkably well over these last months and years. It is called a “Ginnie Mae” fund, and the one that I own is also a Vanguard fund (all Vanguard funds have no loads or commmissions and tiny expense ratios, which is another key to long term wealth). The symbol for this fund is VFIIX and it just reached a new high at $10,69 per share. It pays an annual yield of just under five percent. That is a great place to park at least a substantial portion of the bond money as outlined above. If you are not invested you can open up an online account at a place like TDAmeritrade or eTrade or Scottrade, etc. and buy the funds through that acccount.
A few words about the other two asset classes—-cash and real estate. Never be afraid to keep money in cash or bank CD’s for a limited amount of time. Safe is always good, especially in today’s turbulent times. However you arrange your investments, you have to be able to sleep at night and if your investments are keeping you up, you should put more of your money in something safe such as cash or a savings account. As for real estate, I am a big believer in buying when there ”is blood in the streets,” meaning when everyone else is selling. While real estate prices are continuing to fall, keep in mind that it is a fool’s folly to try and time the bottom of any market, real estate included. Real estate has come down by record levels, so if you are in the market for a home, and can qualify for a loan under the new and much stricter loan rules, today is a great time to buy a house. Look for a really motivated seller and put in a lowball bid—perhaps fifteen percent lower than the asking price— and see what happens. Many people have to sell now just to stay solvent, so you may be able to walk away with the deal of the century.
Lastly, never do anything out of emotion if you can help it. Research connfirms that people tend to do exactly the wrong thing when ruled by emotion. For example, when the Dow sunk to 7,500, many people could not take it anymore, and cashed out. We are significantly above that now, and I believe from a historical perspective, Dow 7,500 will look like a bargain.
One final point that I am sure you already know: never carry credit card balances if you could help it. The percentages they charge on interest should literally be a crime (some upwards of 20 percent). If you come into any money, and have any credit card balances, pay them off first. Credit card companies make the bulk of their money on those that carry the biggest debt load. Don’t let them get rich at your expense.
On Monday there was an interesting article in The New York Times about the state of the state in the book publishing industry (Puttin’ Off the Ritz: The New Austerity in Publishing). For those of us who make our living in publishing the article contained few surprises—yet many of the details were interesting and revealing.
Since the beginning of October 2008, book sales have been down about 7 percent (all book sales, not just business book sales). That’s no surprise. Back in late October, Len Riggio, the CEO of Barnes & Noble, sent a memo to his employees in which he declared that in all of his years in the business, never had he seen a worse outlook for the economy. He also used the term ”Financial Tsunami” to describe the overall economic situation. However, he assured his people that they will be there for the long term, no matter what happens to the economy in the future. B&N is the #1 book retailer in the industry, and as Peter Drucker and Jack Welch taught us, #1 always has the best chance to make it out alive of a bad market.
Unfortunately, Barnes and Noble’s biggest competitor, Borders, can’t promise the same thing. Their company’s stock is selling for a stunning 61 cents per share on this day, meaning that the entire company is worth only $35 million. Their very uncertain future is one of publishers’ greatest concerns in 2009, since they are one of the top three retail accounts of most publishing houses (Barnes and Noble and Amazon being numbers one and two).
The best line in that Times article belonged to Amanda Urban, the literary agent who represents Toni Morrison and Cormac McCarthy, who said “the business was never meant to support limousines.” Urban’s right: I have never regarded publishing as a business for limousines, $500 lunches, or over-the-top sales meetings in foreign, exotic locations. However, I am not naive. Just because my career hasn’t included such things, it doesn’t mean that some publishers haven’t splurged on these items over the years. But, if the CEOs of the three biggest publishers were summoned to Washington to testify before congress you can bet that there would be no private planes fueled up.
The truth is that few of us ever go into publishing for the money—or the perks. We do it because we love books and the writen word. I got into publishing by accident in 1982 and I never looked back— not once. (I started at a particularly modest $14,000 per year). That’s why those of us who love the industry are almost as concerned about the future of publishing as we are about our own personal futures. What would happen if Border’s wasn’t around anymore?
However, many publishers are being as proactive as possible in saving money to help guard against their extinction. Job and salary freezes are common now throughout the industry. Some have cut jobs. One publisher went so far as to declare that they have put a “freeze” on new manuscripts altogether. That move seems too severe to me. As an author, I would be hesitant to sign with such a publisher when they announce that they are turning the spiggot back on. I would be too afraid that they might announce other draconian measures such as cutting back on marketing and promotion. In any event, I have never heard of a large publisher freezing the acquisition of new books/authors, so that tells you how serious the downturn has become.
Yet, there are reasons for optimism, especially in the business book field. The sales of business books have customarily moved with the stock market, and things are beginning to improve on Wall Street. We are about 1,500 points off the low, above 9,000, and by all appearances, the markets have stabilized. We are not seeing the 300-400 point swings these days (they are the exception now, not the rule), and the market has been rising against a backdrop of truly terrible news. That’s always a good sign, and one that has often indicated that a market bottom has been put in place. Earlier this week I predicted that we would see Dow 10,000 in 2009. If that happens, that will restore some confidence throughout the economy. That would stem bankruptcies and likely put a cap on unemployment—two essential ingredients for a turnaround in our economic fortunes.
So who needs limousines, anyway? They are overrated, not all that comfortable, and too big to talk to the driver. Besides, if you ever want to know what is really happening in a city or to the economy as a whole, ask a cab driver. They are the real sages of our day.
Despite the great challenges before us, I think 2009 will be a great year. However, I think things will get worse before they get better. That’s because this country has seldom found itself facing such adversity—the housing crisis, millions losing their jobs and/or their homes, and an overall economy mired in deep recession. And that’s just stuff related to money.
We also face the continued prospects of being bogged down in two wars, a Middle East conflict that could escalate at any time, and the real threat of terrorism that hangs over us constantly—as well as all countries in which Westerners live or travel. Given those problems, it is easy to be pessimistic. However, I have always been an optimist by nature. That’s because, despite all of our problems, we live in the greatest country in the world. I know that’s an oft told truism, but a significant one for me. My parents were not born in this country and they—and their families—were deeply involved in the most brutal and murderous period in world history. That’s why my parents never let me forget how rich the freedoms are that exist in this country. I take heart that I will never have to face such a brutal reality, nor will my wife, children or grandchildren.
There are other reasons for real optimism. Our incoming president is working on a highly anticipated trillion-dollar stimulus package that could help alter the calculus on the economy. It will not be the quick fix Wall Street has been betting on, but it will provide a much-needed psychological boost that can provide something that had been in short supply in 2008—confidence. Above all, our financial institutions and our financial markets require confidence to function smoothly. Without it, we will continue to see dislocations in the credit market, hundreds of bankruptcies, and the worst stock market since the Great Depression (with the S&P 500 down a stunning 45 percent).
Wall Street has been anticipating this record-breaking stimulus package for the last few weeks, which is why the Dow closed 2008 by finishing above 9,000 for the first time in months.
Yet, there are still deep-rooted problems that will have to be remedied if we are to see a real turnaround in 2009. The biggest problem is still the housing crisis. That’s the cancer that will not allow the rest of the body to fully recuperate. Unless we put in some sort of a bottom and end the record number of foreclosures we will remain mired in recession. Unemployment will continue to rise with the real prospect of double-digit unemployment by year-end.
However, I think the housing crisis will bottom in 2009 (albeit late 2009). There are hundreds of billions being thrown at the problem and many smart people are focused—and determined—to end this debacle as soon as possible. Once the cancer is removed the patient can—and will—recover. That is the reason the Dow will close above 10,000 in the next twelve months. That’s what I see in the year ahead, and to make sure that I am held accountable for my own predictions, I will check back in a year to see how I did.
In the meantime, best wishes for a better year in 2009.