Expectations and Perspective

A lot of what drives Wall Street in the short term is expectations. You can just hear those fat old white men sighing "We are so disappointed in you." Good earnings reports are not good enough. New sales figures are ground-breaking, but they expected more. This is really insufferable.

And the constant business news cycle makes it worse. Every crack in the sidewalk is seen as a reportable event. And of course, some yoyo is on the screen chatting about its make-believe significance. I've likened the entire process to betting at the track. It has that kind of fervor and temporary relevance.

Could we possibly track down these experts, a la 60 Minutes, outside of their homes working on the yard, and ask them about this? Oooooh. Econo-Girl is dying to.

Another issue with business coverage is the perspective of the reporting. Econo-Girl was a tiny lass when the stock market bouyed on reports of massive layoffs in the Eighties. A little out of touch? Like if no one has money, aren't they going to spend less? Just call me a socialist, but isn't consumer spending an integral part of our economic engine?

Enough. Econo-Girl has touched on all this before.

Today's topic is the effect of the employment numbers on future interest rate decisions. People are now ominously warning Alan Greenspan in print about the dangers of future interest rate hikes. Like he's going to chuck his own opinions aside, smack his forehead, and exclaim, "Wow! Why didn't I think of that? Gosh, I may be the premiere economist on the planet, but I won't miss another day of CNN Money to save my life!"

There is a conflict in economic theory going on here. One says that inflation is when the economy heats up. And that to cool it down, you raise interest rates. Econo-Girl has raised this in previous posts, and believes that a fast-growing economy is only one of the causes of inflation.

Another is that a by-product of an overheated economy is that more labor is being used to fulfill demand. So there is low employment and escalating salaries. We all know that isn't true now.

Where the U.S. is right now: inflation and low employment. So what to do? Raise interest rates or keep them the same until employment catches up? It will be fascinating to see what Alan Greenspan does. And very widely felt. Hang on. If Econo-Girl is right, interest rates are going up again. She doesn't agree with it, but that is what will happen.

You heard it here first.


Anonymous said...


From what you said, do you think that it 's time to get out of the real estate market? The bubble will burst; the question is when. Is the answer now?

Where does econo-girl puts her money on this one?

Econo-Girl said...

Interesting, interesting.

See my thoughts:

Like No Place Else In The World !!

Greenspan has been delicate around this issue. But Econo-Girl is in agreement with him that the analysis has to be on a market-by-market basis.

Econo-Girl knows the DC market. There will be a correction there, and definitely a slowdown. But it won't be huge, and this is why: there is expected to be a 30% increase in population in this area over the next 25 years. So the demand side of the equation will add some floor to housing prices.

Econo-Girl's money? I stopped real estate speculation about three years ago, anticipating where we are now. Rules are being put in place whereby only occupants can buy housing. At least in my neighborhood. That ends the speculative pressures that feed a bubble. Econo-Girl will discuss real estate fundamentals in another blog entry.

Right now, Econo-Girl is paying off credit cards and loans.