Over periods of time, the performance of the stock market and the real economy are closely linked. This is no surprise; in fact, it’s inevitable if you think about it, as the stock market is just the business expression of the real economy. The correlation of changes in the two has been about 60 percent over the past decade, meaning that the majority of the changes in the stock market can be explained by changes in the size of the real economy.

As we move into the last days before the election, both sides have a lot to say on any and every issue that could vaguely be considered relevant. Ever smaller groups of voters are being targeted and pandered to. Today, it’s the “waitress moms,” per the front-page article in the New York Times (NYT), “Crucial Subset: Female Voters Still Deciding.” Obama continues to be the favorite, but at slowly eroding odds. And people are starting to realize that regardless of who wins the election, we are still going to have to deal with the same problems.

The headlines now are focusing more on what we will do, rather than who is going to be doing it. Even as the political uncertainty escalates—the presidential race is getting tighter, and “Number of Competitive Senate Races Rises” on page A6 of the Wall Street Journal (WSJ) points out that control of the Senate may be up for grabs as well—the economic focus is narrowing. Whoever wins, there is a set of problems that will have to be addressed, and those problems are becoming the focus.

“Standing in the middle of the road is very dangerous; you get knocked down by the traffic from both sides.” — Margaret Thatcher

Margaret Thatcher is not usually associated with the middle of the road, but I have always liked the above quote. And, indeed, there is no question that the middle of the road may be the place to be in American politics.

In the past couple of weeks, I have given several talks to groups of clients, and there have been a couple of common questions and themes in the discussions. The most popular theme is employment—when and whether we will be able to get back to an economy that provides good jobs for lower- and middle-class workers that allow them to buy homes and live a good life. This is really the key question for everyone who loves this country.

The answer I have been giving is that we are not going back to the 1950s. At that time, America was the workshop of the world—because most of the rest of the developed world had destroyed itself. Europe was in ruins, Japan was worse, and the rest of the world had never industrialized. We could sell everything we made because we had no competition. In fact, our policy was to build up the other areas of the world again.

I sent a tweet about this earlier, but I want to mention it here as well. This Wall Street Journal article by Daniel Yergin, “The Real Stimulus: Low-Cost Natural Gas,” is worth a read.

The title pretty much tells the story, but Yergin goes into some detail about the numbers behind the story, as well as some of the second-order repercussions.

Contrary to the old adage that politics stops at the water’s edge, last night’s presidential debate started there and headed straight into politics. The debate made the front page of the U.S. papers, unsurprisingly, but it was a bit of a surprise that there was no real consensus as to who won or lost. To the extent that both candidates had something to lose here, that makes sense. Romney wanted to avoid looking out of his depth or making some obvious misstatement, and Obama had to continue to seem tough and engaged. Both hit their marks, but neither seemed to go much beyond that.

Overall, the race has tightened quite a bit since before the first debate, and, nationally, it seems to be pretty close to a draw. Elections aren’t decided nationally, though, but in the Electoral College based on state results, and there the president still appears to have an edge. Nate Silver has a good article on page A10 of the New York Times (NYT)—“Cutting to the Chase: What Are the Odds?”—that addresses exactly that. Basically, per his analysis, Obama still has a two-thirds chance of winning, based largely on his slight but persistent polling advantages in some of the battleground states.

The market is a beautiful thing. Money flows to what people want, and the end result is that the optimal balance of desires and available resources is obtained with minimal guidance and intervention.

All right, we did the optimism thing last week—now, back to the regular program. Not quite as bad as that, of course, but last Friday was the 25^th anniversary of the 1987 crash, and that has focused minds a bit.

The anniversary of the crash hit the papers last Friday and over the weekend, with “Unhappy Anniversary, Dow” in the weekend Wall Street Journal (WSJ) followed by “That Old Sinking Feeling Returns, Circa October 1987” (p. B1 and p. B5, respectively). These articles were supported by “It’s Time to Time the Market” (WSJ, p. B7), which is about how the market is priced at a level that historically has produced disappointing returns going forward. I will note that my own research, as well as that of many others, also supports the conclusions of that article. The New York Times (NYT) didn’t explicitly headline the crash, but it did put “Shares Fall as Earnings Disappoint on Wall St.” on B1, the front business page.

I have been talking with advisors recently about alternatives. One of the points I always make is that the definition of alternative investments has varied significantly over time, so it’s important to be very specific about what you mean when you say alternative.

In the middle of the last century, for example, you could have made the case that stocks themselves were alternative. At the time, stocks had always yielded more than bonds and always would because they were riskier. Since then, of course, we have seen the opposite conclusion, that stocks are less risky than bonds over time, become the prevailing wisdom. Stocks, at the time, meant U.S. large-cap. Small-cap stocks were dangerous, risky, not for small investors. Until, of course, they weren’t, and now small-cap is a core part of most portfolios. Foreign stocks were dangerous, scary—they don’t speak the same language, so how can we trust their assets? Until they weren’t scary anymore, and again, foreign stocks are now part of many core portfolios. The same logic has played out with emerging markets, with high-yield bonds—formerly known as junk—and now with alternatives.

Two stories that made the front pages today illustrate both the power and the limits of technology. The first was the accidental prerelease of Google’s disappointing earnings. I was looking at my screen yesterday afternoon, watching the Nasdaq drop, and asking anyone who would listen, “What the heck is happening here?” No one knew at the time, though it became apparent an hour or so later what had happened.

For people who haven’t seen the story yet, the financial printer handling Google’s results report accidentally posted it prematurely to the SEC’s website. Although it was rapidly pulled, the damage had been done. The results were well below expectations, showing declines in profits and in the revenue growth rate. The stock tanked.