The Ignorant Investor

Ignorance Can't Stand in the Way of My Opinion

Wednesday, August 10, 2005

 

Wall Street Is Confused

One of the things that has struck me as funny recently is the way every quarter the economy appears to turn in good numbers, and yet the Dow is still stuck in the same range. It's as though every time we have another strong quarter on GDP, people say "that's okay for now, but what about next year?"

That's the nature of Wall Street, on which the price of securities has less to do with the current numbers than where corporate profits will be in six months or a year. The failure of the republicans to control spending, the trade deficit, the concurrent outsourcing of high-wage manufacturing jobs to China and other low-wage countries, and the dual wars in Iraq and Afghanistan have got everyone a little confused as to the future direction of the economy. Are these problems we need to worry about, or are they mere bumps in the road that the muscular American economy will plow through on the way to higher growth?

The economists seem mixed on the question. I'm pessimistic, but then again, I'm always pessimistic. It's a characteristic that I constantly have to guard against in investing, since being too pessimistic is just as bad as being too optimistic. It leads to a lack of risk taking, which typically hurts returns down the road. I honestly don't know. This doesn't feel like a boom time even though the government's numbers are good and Alan Greenspan is smiling.

Comments:
I hope you're only in the bathroom. I'll call back later.
 
Yes, you were right. I was indisposed there for a while. But I'm back now, and I hope you stop back again.
 
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