Friday, March 08, 2013

Why are stocks rising when growth is so slow?

I love to read about a variety of topics as many of you know. One of the subjects is economics and the present state of the economy. Why? There is so much I don't know. Simple as that.

The big question in the midst of this market rally is why are stocks so high while unemployment/growth is so slow? Here are some excerpts from a well known economist which tells the story beautifully: I paraphrased the article. The link to the complete article is below

"The financial crisis and the bursting of the housing bubble created a situation in which almost all of the economy’s major players are simultaneously trying to pay down debt by spending less than their income...

...right now everyone wants to save and nobody wants to invest...excess savings are driving down borrowing costs...Stocks are high, in part, because bond yields are so low, and investors have to put their money somewhere.

It’s also true, however, that while the economy remains deeply depressed, corporate profits have staged a strong recovery. And that’s a bad thing! Not only are workers failing to share in the fruits of their own rising productivity, hundreds of billions of dollars are piling up in the treasuries of corporations that, facing weak consumer demand, see no reason to put those dollars to work."


Hence, the markets are soaring but income is hardly rising, unemployment is high and the overall upward trend of the US GDP is not high enough to make a dent in the unemployment rate. 

Basically, We have a long way to go!

Thursday, March 07, 2013

Behavorial Meteorology: Why Can't We Handle Forecasts

We generally hate probabilities in life...especially in weather forecasts. For our minds to grasp probabilities, we need to be able to handle multiple possible outcomes at once. Weather has many, many outcomes over a large area due to the changing initial conditions. Typically, our brains work much better with a theme that is linear. That is with a beginning, middle and an end. In other words, we want to know if it will rain or not. We crave "black and white" scenarios. We love a good narrative, a story, versus something that is data driven.

I try to explain the multiple variables that go into a forecast for the many locations around the viewing area which will be affected. For most, it goes in one ear and out the other.  Our minds don't easily recognize the probability elements and instead, we favor a story that fits our biases. If someone doesn't like the forecaster, they have less of a chance of being believed. If it doesn't rain over their house when the probability is 90% chance of rain, the forecaster is wrong. Even if the rest of the area was hit with a good downpour.  We find elements of the story that fit our preconceived notions about the subject and hold onto them even if data says otherwise. Remember the psychology when you hear a weather forecast. Its never as straight forward as we'd like it to be.