The views expressed in this column are those of the author and not SVB Financial Group.
Sometimes doing nothing is the right choice. From my experience, the following examples make sense:
- Getting some rest is probably a good idea after that long run or spin class
- Waking up early enough to clean the garage, but betting your wife will sleep in so you can put it off one more weekend
- Realizing you've accidently cut in front of 100 people or so in line at the airport once you've reached the front of the line
- A Hell's Angel enters and sits next to you at the bar
What do these have in common?
Perhaps we can boil this down to a short maxim: Sometimes it's better to stop, wait, look and listen. Or, better put: Don't just do something, stand there!
This is the course the Fed seems to be taking and I, for one, am applauding.
Today, there is a confluence of events, attitudes, and actions that are yet to be understood, making it quite difficult to determine the next course of action. (Certainly my opinion on what Congress should do is well-documented, but the Fed is not so powerful.)
Psychologically, we are all still trying to understand this "new economy." Consumers and investors alike are quite confused. Everything we came to depend on in the financial world seems to be up for question. (In fact, not only is this occurring in the financial world, but we've also added many questions in the world of healthcare!)
We know investors and consumers usually act rationally given the information they have, but today that information is constantly changing. Not only are significant government regulations in flux, but we are all worried about our jobs and our wealth to a greater extent than in the old economy.
This, alone, creates a delay on the way to the other side of the riverbed.
Given we are faced with these informational challenges which affect our psychology, is it not appropriate to realize time is the best healing remedy we can obtain?
With interest rates so low, the logic goes, investors should be levering into risk assets and consumers should be taking on debt given cheap dollars. But when we note "investors" and "consumers" are humans too, we realize there is the potential for significant variability in the real world.
Economists and Ph.D.'s can create models and run calculations from here to the moon, but they cannot fully predict human behavior.
Bernanke, it seems, is allowing buying time by doing nothing (or at least, very little). Consider how many times over the past several years you've been told that Geithner/Paulson/Bernanke/ Obama were going to give a speech/make an announcement/reveal a plan for the economy. Did you fall into the trap that simply stringing together a few words or actions would drive the economy to recovery? If you answered yes, you are likely in the majority.
Perhaps the attitudes of the "immediate satisfaction" generation are bleeding into the entire adult community.
Sales at U.S. retailers increased 0.8 percent in November, above forecast and the previous month was revised upward to 1.7 percent. The indicator points to the fact that American consumers are willing to spend for the holidays. Excluding autos, sales rose 1.2 percent.
The Producer Price Index rose 0.8 percent in November from the previous month and 3.5 percent from last year. Excluding food and energy, PPI increased 0.3 percent and 1.2 percent, respectively. Core prices remain subdued and have steadily trended down over recent months.
The Consumer Price Index rose 0.1 percent in November from the previous month and 1.1 percent from last year. Core CPI increased 0.1 percent and 0.8 percent, respectively. The modest increase indicates that inflation continues to be benign.
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