Do You Dare Buy Stocks?

When there is a stock-market boom, and everyone is scrambling for common stocks, take all your common stocks and sell them... No doubt the stocks you sold will go higher. Pay no attention to this--just wait for the depression, which will come sooner or later. When this depression--or panic--becomes a national catastrophe... buy back the stocks. No doubt the stocks will go still lower. Again pay no attention. Wait for the next boom. Continue to repeat this operation as long as you live, and you'll have the pleasure of dying rich.

--Fred Schwed Jr., "Where Are the Customers' Yachts?"

An ancient story has a hick admiring the bankers' and stockbrokers' yachts riding high in New York Harbor. "And where," he asks naively, "are the customers' yachts?" Stockbroker Fred Schwed swiped that joke for the title of his immortal book on the brokerage ("quote-and-fib") business, published in 1940 and, blessedly, still in print. To update, just substitute "recession" or "correction" for "depression" in the quote. Buy stocks when things get so bad that politicians make speeches and the bull-market babies program their V-chips to block CNBC.

How bad: So how bad are things, anyway? Not serious, in the majority view. You're seeing a classic business-inventory cycle. Blinded by optimism, all kinds of businesses--not just techs and telecoms--built more capacity and ordered more stuff than they can sell today. Now they're pulling back, to work off the excess. "The slowdown was sharper than we forecast," says economist Ben Herzon of Macroeconomic Advisers in St. Louis. "But if final sales keep growing at current rates, it's just temporary."

Other economists think it could be a year before business is up and running again. They see post-bubble risks--the global slowdown, scared investors, too little consumer savings, too much debt, higher unemployment, the shocks absorbed by folks who owned techs wall-to-wall in their retirement funds. Boomers have 14 fewer years to catch up than they had after the Crash of 1987.

Technically, the economy may skirt recession (defined as at least two quarters of decline), but "it's the change from high growth to lower growth that counts," says Allen Sinai, chief global economist for Primark Decision Economics in New York. "In the months ahead, it's going to feel more like a recession than it does today."