Tracking the relevant data can help you explain complex issues to your clients.
The cable news networks have us ricocheting from doom and gloom to glimmers of hope, only to be slammed against doom and gloom again. The economic indicators seem to be swirling instead of trending. Create an economic scorecard for your clients to help them understand the most important indicators and what they mean to investors.
Since the explosion of 24/7 cable network news and the incessant coverage of all things financial, your clients have been bombarded with economic terms and statistics that only PhD's use in everyday conversation. Not only are we crushed by the sheer volume of data, the various talking heads draw vastly different conclusions from the same set of ever-changing numbers. How could anyone make any sense of this?
Yes, we are in uncharted waters. Yes, many different forces came together to create a perfect storm of economic collapse. Whether this could have been predicted or prevented is not really the issue for your clients now. Too many of them have fled to the sidelines to wait it out. We understand their anxiety and fear, even if we still recommend that investors stay the course. Now their problem is how to know when it is "safe" to get back in the water.
The Lizards Are Winning
Our intellectual brains tell us that the market hasn't been this "safe" in a decade, if safe means that there is more upside potential than downside. Funny, your clients probably don't feel that way late at night. An increasing number of investors are responding not with their highly developed cerebral cortexes, but with what Bob Veres so aptly described as our lizard brain. This reptilian, preverbal remnant causes us to react to what we perceive as danger with a flight or fight response. When investors can't comfortably assess the danger and don't know how to evaluate whether it is getting better or worse, it is not surprising that so many have responded by fleeing equities for the perceived safety of cash.
Let's give them an understandable scorecard so they can begin to make sense of the news.
What's an 'Economy' Anyway?
Loosely stated, an economy is all the activities involved with the production and distribution of goods and services in a geographic area. There are many moving pieces, some more important than others. For investors, there are six primary factors to understand:
* Personal Income
* Retail Sales
* Consumer Confidence
* Government Spending
* Monetary Policy
Employment: 'I Have a Job'
The ability to earn a stream of income for decades to come is quickly becoming a highly prized asset. For many people, it is arguably their largest economic asset. For this reason, employment is the single most important variable in the health of any economy. Employment is the engine that drives economies. It provides the monetary source (employee compensation) that keeps all the other parts moving. We evaluate employment by measuring its inverse, unemployment. When unemployment is low, economies expand. Economies contract when unemployment increases. Employment statistics can be found at The Bureau of Labor Statistics website, www.bls.gov.