Photo: Lee Haywood. Source: Flikr.CC-BY-2.0
It is if you’re unemployed. But it’s bad news if you’re trying to hire workers and expand your business. The same can be said about inflation: higher prices are good if you’re a producer, but bad news if you’re a consumer on a fixed income. Economic news isn’t necessarily good or bad. It just is.
It’s hard for economists and market observers to avoid value judgements. The biggest danger is confirmation bias: seeing evidence that validates our prior assumptions. If you’re a market bull, it’s easy to find data that show stocks and bonds are fairly priced, the economy is booming, and corporate earnings are growing faster than expected. If you’re a market bear, we can also show that stocks are overpriced, the economy is slowing, and financial pressures are cooking just under the surface, ready to explode like Mount St. Helens.
Photo: Mike Doukas. Source: USGS, Wiki
Most folks are invested in the market and the economy, if only through their jobs. If our employers do well, the business expands and our jobs are more secure. Conversely, when the economy shrinks and companies lay off workers, everyone’s job and income can be at risk. When the boss isn’t happy, nobody’s happy.
As a result, it’s easy to root for the market, to look for and find signals of expansion and growth. On the other hand, since everyone’s a cheerleader, commentators may distinguish themselves by being bearish, by looking for and finding signs of impending doom. But wanting something doesn’t make it so.
An example of wishful thinking. Illustration: Mary Mapes Dodge. Source: Wikimedia
That’s why honest observers should try to leave their expectations at the door. If you don’t like our current political leadership, you might see signs of their failure because you want them to fail. And the converse is true as well: political supporters always seem to find a silver lining in every storm cloud. But the market doesn’t care about our politics. A colleague says that he’s not a preacher, he’s an economist – he tries to go where the data tells him to go.
The Greek historian Thucydides wrote that we expect what we long for, and we discard the views we don’t already fancy. Dante, Shakespeare, and Sir Francis Bacon said much the same thing: the wish is father to the thought. So be careful what you wish for.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”