In Japan one often finds large arrangements of large stones and rows of raked gravel called Zen gardens, often no bigger than suburban back yards. Zen masters have supposedly laid these gardens out in strange patterns as koans-indecipherable messages that force their students to ponder reality. Near one of these inscrutable rock gardens in Kyoto, Japan, called the Ryoan-ji, is a water basin fed by bamboo fountain that reads, "I learn only to be contented."

Such frustrating signs and messages would also likely apply to investment forecasting for 2010, when analysts must seed every prediction they make with the wry admonition that nobody really knows anything. That caveat often follows forecasts after 2008, when few people saw the dark fledge of multiple Black Swans coming to tear down Wall Street and some of its most venerable financial institutions.

Uncertainty is prompting veteran investors to purchase assets or allocate them in ways they never did before. At last month's Financial Advisor Symposium, Elizabeth Bramwell remarked that she was buying gold for the first time in her career. Steve Leuthold told attendees that his Core Equity fund had 50% of its assets outside the United States, a first for him.

In the past, a good rule of thumb was that the deeper the recession, the sharper the recovery. But we're in an age now of the continued deleveraging at both the corporate and personal levels. That's expected to play out over several years and has several market-watchers suggesting that growth is going to be a lot slower than expected.

Yet there's general agreement with Federal Reserve Chairman Ben Bernanke that the country started to peek out from under the blanket of recession in August or September of 2009. According to the U.S. Commerce Department, real gross domestic product rose at an annual rate of 3.5% in the third quarter of 2009, rising from negative 0.7% the quarter before and three previous quarters of decline before that.

But few Americans feel good about the economy after unemployment hit 10.2% in October 2009, its highest level in a quarter century. If they aren't unemployed themselves, many Americans know someone who is, and that affects them psychologically, dampening their mood, and that, in turn, crimps the spending that might get the economy heated up again. Sharply rebounding markets in 2009 may have had analysts cheering about the success of the government's economic rescue efforts, but by midyear, people were already wondering if perhaps prices were getting overheated in an economy that's lukewarm at best.

With the exception of the last two recessions, rebounds are usually supposed to be big-anywhere from 6% to 8% GDP growth in the following year (after the 1981-82 recession, there were six quarters of GDP growth above 5% and four of those were above 8%). Many economists now, however, are predicting much slower going: the prediction of a Bloomberg survey for real GDP growth in 2010 is a meek 2.3%.

"It is unusual in my thinking," says Boston-based LPL Financial economist John Canally, "that you have the worst recession since the Great Depression and yet the forecasts for the first year recovery is as slow as the recoveries that we got after the 1991 and 2001 recessions, which as you know were quite mild."

Jerry Jordan, manager of the Jordan Opportunity Fund based in Boston, suggests that if we averaged 3.5% GDP growth during the last 15 years we'll probably average 1.5% to 2% for the next ten years. "It won't be negative, it just will be slower," he says.
"I think we'll get into the beginning or middle of next year and people will say, 'Wow, things have really gotten better,'" says Jordan. "But I think that will be a problem because ... the door on excess capacity in oil and copper is going to slam shut. Raw material prices are going to lock it up and [interest] rates are going back up, and that will then snuff out this burgeoning upturn and you could very easily be back in a recession, I think, by 2011."

Perkier Indicators
Despite the slow growth predictions, economists are sanguine about the proof everywhere that the recession ended sometime around the end of summer.

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