How do we fix the stock market and the economy?

We fix confidence, says one local marketwatcher. But how do we do that?

Here’s what Jim Paulsen, chief investment strategist for Wells Capital Management, had to say in his latest newsletter:

The U.S. is facing one of its most severe confidence crises in its history and it has little experience in dealing with such a deep and prolonged period of widespread and dominating fear!

The economic toolbox has always been full of “fixes” for fundamental economic problems. Tax and interest rate cuts, fiscal spending hikes and monetary accommodations help improve weak balance sheets and speed up slow income statements.

But the toolbox is notably empty when it comes to “confidence fixes.” In the last year, and particularly in recent weeks, policy officials have been treating fundamental economic problems with stronger and stronger doses of traditional medicines.

While these applications have certainly improved fundamental issues, they have done little for the primary problem that has long been facing the economy–worsening fears and a deepening loss of confidence!

I asked Jim via email what it will take to regain confidence, and here’s what he said:

I think we need a slower, calmer, more confident leadership which makes decisions in a manner which looks less panicky.

I think we need leadership which reminds the country less about how bad things are and more about how much has already been done and how it will work, reminds them of good things coming (new president, actual results from TARP, better functioning commercial paper market, much cheaper gasoline prices, more time for policies already put in place to work).

Remind them that we only need to fear fear itself. I know this is touchy-feely stuff, but I think it is important and Fear, not fundamental problems is what really is hurting us.

Anyone have any confidence fixes, besides banning all viewing of cable business news channels?

This entry was posted on Friday, October 31st, 2008 at 2:59 pm and is filed under financial psychology. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.