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Investment Advice

Chicken Little nd maybe a crack in the skyWe’ve called upon our financial adviser, Chicken Little, for investment advice. Here’s why.  According to the government’s Bureau of Economic Analysis, real gross domestic product — the output of goods and services produced by labor and property located in the United States  — increased at an annual rate of 3.0 percent in the fourth quarter of 2011. That’s nice, but it’s not great. Yet the Labor Department reported that the US added 227,000 jobs in February. That was the third month in a row that the country added more than 200,000 nonfarm jobs.  That seems excessive when the GDP is so anemic.

Apparently, consumers are buying more things and paying for more services and that induces employers to hire more workers to make more things and to provide more services.  But those nice consumers are building up their credit card debt again. After the recession hit home, people began paying off their debt instead of spending. But now, according to the Federal Reserve, revolving credit, made up mostly of credit card debt, increased during the last four months of 2011, going up nearly $3 billion to $801 billion.  (It went down in the first month of this year, but January always shows a drop in credit card debt because consumers are exhausted by what they spent for Christmas.)

So people have begun once again to spend money they don’t have and maybe that’s what this improvement in the economic scene is built on. That’s why called on our financial adviser, Chicken Little.

As usual, Ms Little explained everything and put our minds at rest. “While the job numbers have improved, I would not call them excessively good,” she said.  “GDP is only weakly linked to current employment numbers.  It combines things like consumption, investment, balance of trade and stuff. It’s related like the stock market is related to the economy — only over time they track.   Consumers always feel better and spend more when employment and the stock market goes up. We who follow such things are never bothered by contradictions.”

Investment Advice

Now that the stock market is going up and down by three or four hundred points a day, it’s time to introduce our financial  adviser, Chicken LittleChicken Little. That’s Mr. Little over there on the left, watching the sky fall. Chicken Little has a good memory for market behavior over the past hundred years, has studied the Great Depression and is thoroughly familiar with the writings of economists such as John Maynard Keynes, Friedrich Hayek, Martin Feldstein, and Paul Krugman.

About the current market situation, our adviser tells us “The market is highly volatile,” and “Traders are worried about the Euro-zone  economies, especially the status of European banks, and the debts of some European nations, such as Greece, Ireland, Spain, Italy and now, possibly, France. Also, the downgrading of the United States’ credit from AAA to AA+ doesn’t inspire confidence.”

Mr Little  tries to agree with politicians who say that we are suffering from a lack of confidence and nothing more. As he phrased it, “The market is down because people won’t buy stocks when they have no confidence that business will improve. After all, 14,000,000 people don’t have jobs to earn money and buy things. So it’s really just a lack of confidence, nothing more.”

According to Chicken Little, “The market hates uncertainty and currently things are very uncertain, and that’s why the market is so hateful.  If you keep in mind that past performance is no indication of future results, you’ll do fine.”

 

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