Contemplating confidence
Posted on October 31st, 2008 – 2:59 PMBy Kara McGuire
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?
9 Responses to "Contemplating confidence"
I would think a good start would be to lessen the stories on the news about how bad it is. People love to watch the train wreck and our country is certainly in decline but everyone needs to take a deep breath and just move on. Show me something good on the news!!
“Fear, not fundamental problems is what really is hurting us.”
Wow! I never would have imagined that too much lending to people who couldn’t pay back the money wasn’t a fundamental problem. Apparently the lenders just need to regain their confidence and start doing it again. Or perhaps he means consumers need to regain their confidence to stop saving a little (like they’ve started doing) and spend beyond their means.
Could you ask Paulsen whether he was crowing about overconfidence during the housing and stock market bubbles?
There seem to be a lot of people around who think we need to just restore confidence, but the economy isn’t about people feeling so wonderful that they spend money on stuff they don’t need; it’s about a balance between satisfying your needs and a few of your wants, as well as saving and investing enough to support production and remain secure.
-Ryan
Here’s a confidence fix: put a few dollars in the bank, another few into investments, and pay down your mortgage. Then, when everybody else loses their confidence, you’ll have the cash to buy their stuff at bargain prices!
I’m not sure that’s the kind of confidence you mean though.
-Ryan
In yesterday’s NYT there was a long article about how some town in Iowa is having success creating new jobs by attracting alternative energy startups. Workers who used to build washing machines for Maytag are now making windmill blades. Confidence in that town went into the tank when the Maytag plant shut down. Now confidence is on the rise because more people are working, which means more people are buying things from local retailers, which keeps the cash flowing within the community.
With more of such investments, we can rebuild lost confidence.
I think Ryan brings up a fundamental point about the problems with a consumer-driven economy. When so much of our growth is fueled by mindless spending (and spending beyond our means), what can we do when “confidence” is in the tank? bsimon’s notes are a great start, and it’s where I think all the “economic stimulii” should have gone and should be going. If we’re going to borrow from the Chinese and our grandkids, let’s do something with the money that’s focused on the long term. I would have forsaken that check this summer for more gov’t investment in alternative energy in a heartbeat.
Technical question - what’s “TARP”?
Right on Ryan and Mike. I am enjoying picking up some bargains right now…
TARP is the Paulson “bailout.”
Troubled Assets Relief Program
Thanks Ryan, I knew I could count on Ka-Blog readers for the answer!
The only way: let the free market fix it.
