2 comments for “It’s the Stupid Economy

  1. Anny Chien
    August 10, 2008 at 8:50 pm

    The John Stewart video highlights the ultra-importance of being specific when speaking about economic issues. When speaking in generalities, anything can be taken out of context. While there is a great deal of humor generated by the cross-cut editing back and forth between the president and the fed chairman with their seemingly contradictory statements. However, upon closer inspection, one might find that such contradictory statements might actually be possible and moreover true. The media, especially comedy shows, need to latch onto sound bites and break things down into one or two sentence, black and white, true or false conclusions, but rarely are things this way in life. They are more complex and can harbor both positive and negative issues inside a single topic. This holds especially true for the economy. Take for example the falling dollar value. While it hurts or raises the price of imports, it is positive for our exports. Similarly, the falling housing market is a boon for foreign buyers and in the long run it helps equalize or stabilize prices back to affordable levels, fixes the lax underwriting standards for lending, and pushes speculators and house flippers out of the market. In effect, the saying every cloud has a silver lining is especially apt here. Still, it is hilarious to see two people talking about the same issue, at the same time, with two polar opposite conclusions or opinions, even if they both may be true.

    Ultimately, stock prices are based on opinions of future growth (expectation), so technically speaking, public opinion can drive up or down a stock and likewise a company as happened to Bear Stearns and even IndyMac Bank after a letter from Senator Schumer questioned whether they were well capitalized to withstand a struggling economy. Once strong institutions can perish overnight when the public gets sufficiently spooked. Therefore, playing up the strengths of an economy may benefit everyone more than pointing out the dark corners. This is not to say the dark corners cannot be probed and discussed behind the scenes but it probably shouldn’t be paraded out in front of the public as a scare tactic, much like yelling “fire” in a crowded theatre likely won’t lead to a good outcome, regardless of whether a fire has started in one area of the building.

  2. Calvin Tay
    August 12, 2008 at 7:32 pm

    While I tend to agree with Anny, I feel that the main focus should be on the very different roles of these two individuals (the president and the chairman of the Federal Reserve).

    The coincidence of the time of their speeches is, in my opinion, an attempt at communicating to different audiences. (This is my speculation) I would say that the general tendency is for stock market watchers (investors, key decision makers etc) to care more about what the Fed has to say while the general public (who are not directly affected by the stock markets or do not fully understand the mechanics of the economy) tends towards the President’s speech. Thus it was designed to caution the stock market watchers and the entire target group to be more cautious about their strategy. However, the President’s speech was to keep everyone else, who work hard toward achieving their firms goals, at their peak performance without fearing retrenchment and other issues (something that firms fear as it creates unnecessary dead weight and inefficiencies). Management has enough to worry about in trying to navigate their companies through this troubled economy to have increased inefficiencies slowing them down.

    Just extra thoughts.

    About the stock prices, firms do have the option to of buying back their shares from the public if the management feels that the stock is undervalued and sell it to banks or other corporates (or even cash rich investors), thus these institutions become the shareholders. This usually happens when share prices do not reflect their true value (in this way, they can make money off the transaction as well. Of course, they will have to prove their company’s worth with balance sheets, business model, strategy and such).

    Also, if companies are not as well known, they may not reflect true market sentiment (perceived future value) at all. In fact, especially if their stock prices are low, key investors can effectively trade (not just stocks but bonds as well) in such a way that it is to their own benefit to increase their returns. Stock prices should therefore not be looked upon simply as opinions of future growth (even though it is more applicable for large corporates with many investors and market caps) as there is a lot that investors can do to legally manipulate it to their own benefit especially if their individual actions can have substantial effect.

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