Please ignore the optimism machine
Experts say the worst of the economic crisis is over, and things are starting to pick up. But Economics Editor Chris Farrrell says don't be too quick to buy into the hype.
Economics editor Chris Farrell (American Public Media)
More on Straight Story, Commentaries, America's Financial Crisis
TEXT OF COMMENTARY
TESS VIGELAND: At least the economy isn't on fire anymore. Though there are stray embers -- like adjustable rate mortgages and layoffs --that could re-ignite at any moment.
There does seem to be more optimism about the economy. The improvement is starting to show up in our retirement savings plans. But instead of cheering, our economics editor Chris Farrell is nervous.
Chris Farrell: Part of my job is to worry, to look at the downside, to explain the dangers. Even though things seem to be getting better, a subtle lesson involving music and wine has me concerned. No, this isn't a tale of romance. That's for another show.
Michael Mauboussin is the chief investment strategist at Legg Mason, but he's also a delightful intellect that draws investment insight from all kinds of research. Take this tidbit from his book "Think Twice": Imagine you're strolling down a grocery store aisle. There is a bin with French wine and next to it a basket of German wine. Sometimes the background music is French and other times German.
Marketers discovered that consumer's bought French wine 77 percent of the time when French music was playing. With German music playing, 73 percent of the buyers chose a German wine. Yet a majority of customers denied that the music influenced their choice.
RIGHT!
What does this have to do with the market and retirement savings plans? Well, imagine that the "background music" is a better performing economy. What bottle might you be coaxed to purchase? Chateau De Wall Street?
Sure, we know there will be dark days and nerve-wracking setbacks in coming months. But with the stock market up by more than 40 percent from its lows, isn't it time to jump back in? No.
Sure, lots of folks are singing the stock market tune. But don't listen to the siren song of joining the crowd. Don't let a strong stock market influence your investing decisions. Be aware of the investing music in the background.
How do you do that? Focus on your family and household and ignore the Wall Street optimism machine. What are your goals and needs? What would happen to your standard of living if the markets swooned again? Maybe you should invest more in equities, maybe you shouldn't. What's the right decision for your household?
These are kinds of questions that matter. And enjoy that glass of wine while you're thinking it over.
Comments
Comment | Refresh
From Minnetonka, MN, 09/10/2009
I made the last mortgage payment on our house last month. Am I supposed to recieve a document that shows I own the house?
From Raleigh, NC, 09/05/2009
Only 1 in 10 economists saw the economic crisis coming. The same 9 out of 10 economists who got is wrong are now saying the recession is over. The only reason things appear to be stable is because the banks are hiding the losses on their balance sheets with the permission of the Government.
If you look behind the unemployment numbers at what caused this in the first place, things continue to get worse. Several TRILLIONS in home and commercial real estate are still in trouble, and a large number of them will go toxic:
http://money.cnn.com/2009/08/06/real_estate/underwaterworld/
This is why the foreclosure rates continue to skyrocket, and why banks continue to fail at a rate of 2-3 per week:
http://money.cnn.com/2009/09/04/news/companies/bank_failures/?postversion=2009090421
Things are going to get very ugly in 2010 and 2011. Take Chris's advice. Ignore the hype, get the facts, be prepared.
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.