"A Spoonful of Sugar Makes the Medicine Go Down." If Mary Poppins were an economist, this is what she would be saying to the American Economy. She would also have said "do not be fooled by the temporary upswing of the dollar (rebounding back to 1.30 this Friday)." Unfortunately, even fundamentals such as employment cannot change the direction in which the American economy is heading in the long run. The spoonful of sugar is in fact the cheap money supply, which after moderate tightening is still plentiful to sustain investments that reap positive effects to American labor statistics.
Investors were desperate for good news and the results came as a mild surprise. It is even rumored that the fed may not decrease its short term rates. Is this a reason for celebration? No. The market often overreacts to both gloom and positive news. Investors have been warned of a forthcoming recession for many months. The signal by the economic weatherman is hardly a prediction of blue skies for the coming time period. The minute cheap oil is hampered by a cold surge or other disruptions from the world's incurable hot spots; the short honeymoon is surely to end with a migraine.
As economists, we are often trained to treat investor reactions to news with a certain degree of reservation if not pessimism. Economists like to focus on the analysis of indicators such as housing, trade imbalances, GDP, fiscal strength, growth et al. And economists are quite aware of the temporary emotional fickleness of investors who think that a patch of blue sky spells out summer.
I, however, am not afraid to stick out my neck and say that even though the forecasted rain is somewhat postponed, it is definitely not the time to plan a picnic just yet. Furthermore, your best investment right now is an umbrella such that your tasty dollar assets do not get watered down by the rain. The temporary rebound may be the perfect opportunity you need to strategically relocate that picnic basket of yours.
And yes, a spoonful of sugar does make the medicine go down.
Investors were desperate for good news and the results came as a mild surprise. It is even rumored that the fed may not decrease its short term rates. Is this a reason for celebration? No. The market often overreacts to both gloom and positive news. Investors have been warned of a forthcoming recession for many months. The signal by the economic weatherman is hardly a prediction of blue skies for the coming time period. The minute cheap oil is hampered by a cold surge or other disruptions from the world's incurable hot spots; the short honeymoon is surely to end with a migraine.
As economists, we are often trained to treat investor reactions to news with a certain degree of reservation if not pessimism. Economists like to focus on the analysis of indicators such as housing, trade imbalances, GDP, fiscal strength, growth et al. And economists are quite aware of the temporary emotional fickleness of investors who think that a patch of blue sky spells out summer.
I, however, am not afraid to stick out my neck and say that even though the forecasted rain is somewhat postponed, it is definitely not the time to plan a picnic just yet. Furthermore, your best investment right now is an umbrella such that your tasty dollar assets do not get watered down by the rain. The temporary rebound may be the perfect opportunity you need to strategically relocate that picnic basket of yours.
And yes, a spoonful of sugar does make the medicine go down.
3 comments:
very cool way of writing about economics, wish my teacher could do it the same way
Fantastic writeup! I've been a silent reader since the post #3.
However, this post is so far my best. The way the situation was critically analized is very impressive! Well done!
On the post, I agree with you. Yes, it looks like that there is a small ray of light at the end of the tunnel, but like you said,one should still be cautious.
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