I have demonstrated in previous chapters that there is little statistical correlation between the performance of the stock market and the performance of the economy. But that is not to say the economy does not matter. In the long run, it not only matters a great deal - it is the driving force for all investments.
I have used the phrase Muddle Through Economy in the preceding 14 chapters to describe my view of what we face in the coming years. By that, I mean an economy which will indeed be growing, but that growth will be below the long term trend. The Muddle Through Economy will be more susceptible to recession, similar to the period from 1969 to 1982. This is an economy which must strive to move forward burdened with the heavy baggage of old problems created in the last century while facing the strong headwinds of new challenges.
Understanding this concept is critical to your recognition of how to invest and plan for the future. Like generals who plan for future battles based upon the last war, if you plan for a future which looks like the 80's and 90's, you will not be happy with the outcome of your investment battles.
This is not a message of gloom and doom. To suggest we will face recessions in our future is not to say the world is not coming to an end. It is simply changing. Successful investors must acknowledge the fact that we face a different set of challenges. I believe this chapter is a realistic assessment of the challenges we face. You can focus on the problems, but that is not productive. It is much better to see them coming and work to avoid their investment consequences by finding better alternatives. There are any number of exciting opportunities available to the prepared and creative mind, as we will see in the remainder of the book.