June 6, 2023
Posted on June 06, 2023
Planning and Guidance, Tailored To Your Life and Goals
Posted on February 18, 2015
<![CDATA[Animal spirits were improving last week, according to Barron’s. The idea of animal spirits was introduced to the dismal science (a.k.a. economics) in the late1930s, courtesy of John Maynard Keynes. In The General Theory of Employment, Interest and Money (a dreary title that surely could have benefitted from an injection of animal spirits), he wrote:
“…a large portion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”In modern times, Keynes’ idea blossomed into the field of behavioral economics, the study of human psychology on economic decision-making. One of the animal spirits that influences decision-making is confidence (another is overconfidence) which can drive stock markets higher. Last week, easing measures by the European Central Bank (ECB), a cease-fire agreement in Ukraine, optimism about negotiations over Greek debt, and better than expected earnings for many companies, helped improve investment sentiment in Europe for the fourth straight month, according to Reuters. Many European markets moved higher. In the United States, strong fourth quarter earnings, improving oil prices, and good news from Europe helped push markets higher as well. Reuters reported the CBOE Volatility Index (VIX), Wall Street’s fear gauge, hit its lowest level for the year on Friday.
“So back to the markets and the game of chicken being played between Greece and the EU. A Grexit [Greek exit from the euro] might cause problems for the EU in the form of losses for the ECB and others on bad debts… But, as we have seen, Greek financial markets are tanking. So investors clearly feel the EU has a stronger hand to play.”It seems to be a good time to reflect on an old saying: Beware what you wish for; you just might get it. ]]>