The tottering point

You may have heard of the famous book, “The Tipping Point.”  The title is so perfect, that even for folks who haven’t read the book, they understand the point of the book immediately.  That is, there are many things in life that are in one realm, yet approaching a boundary.  Across that boundary lies change.  This place between one state and the next is the “tipping point.”  So where are we now with the economic recovery?  Where are we now with the financial markets?

I would argue that we are at “the tottering point.”

The state of things is that the U.S. economy, and other major economies like China’s, Germany’s, the United Kingdom’s, and many others, are all posting improved economic statistics.  Yet, despite this, the weight of the data have not been enough to reach a tipping point.  Instead there are financial market rallies, followed by retreats.  So here we totter.  Back and forth we have gone with some progress, but not enough.  This is another way of saying that investors are still primarily focused on their worries and not on their opportunities.

This is evidenced by the ease with which the Irish debt “crisis” was able to undo the momentum that had been building in the financial markets.  The Irish situation was treated, not with careful analysis, but with fear.  Because earlier in the year the legitimate Greek crisis had spooked investors, the Irish were lumped into the same category without scrutinizing the comparison.  To me this is evidence of an investment community focused on worries, not opportunities.

Another worry, and a more legitimate one, is the continued lack of improvement in the unemployment rate in the United States.  However, this too is likely to show gradual improvement.  Investors must know this intellectually and intuitively.  Businesses and their employees are out there trying to earn greater profits, trying to innovate, and trying to grow.  Enough will succeed to improve the employment situation.  But this is the long-view; the 18 month view.  Yet fears are more predominate right now.  So eyes are focused on the right now.  That is evidence of a “tottering point.”

Investment is an activity that relies on a focus on the future.  When eyes are not looking forward, but instead, are looking down and around, forward progress is difficult as worries trump opportunities.

However, change is inevitable; as is, the positive change brought on by hard-working, intelligent people.  My belief is that by the end of the retail fourth quarter, the end of January, investors will be focusing on opportunity more than worry.  That will be the tipping point.

Jason