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"Snow
and adolescence are the only problems that disappear if you
ignore them long enough."
~ Earl Wilson
The Markets
Another interest rate cut from the Federal
Reserve was not enough to stop a downdraft in the stock market
last week.
Investors had their hopes set high on the
Fed taking some aggressive action to fight off a potential
recession.
However
Tuesday’s .25% rate cut was the minimum that was expected
and the accompanying comments were viewed as negative for
further cuts. Markets tumbled, even after central banks worldwide
moved to add liquidity to the financial markets. While investors
are worried about a recession the Federal Reserve remains
focused on inflation.
The Fed is now fighting a war on two
fronts, limiting its ability to maneuver. On the one hand,
we have the liquidity
crisis in financial markets. On the other hand, we have
the specter of inflation, with the consumer price index rising
0.8% in November and core CPI up 0.3% (Marketwatch), while
producer prices (finished goods) spiked 3.2% (BLS news release).
After last week failed attempt to rally
the markets, the Fed is left with some hard choices. Restoring
confidence
in the banking sector should remain the #1 priority, but
taming inflation is likely to take precedence over buoyant
stock prices and consumption.
| Returns through 12/14/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
-2.1 |
7.0 |
7.4 |
7.7 |
9.1 |
5.3 |
| Nasdaq Composite |
-2.6 |
9.1 |
7.4 |
6.9 |
13.5 |
5.5 |
| Standard & Poor's 500 |
-2.4 |
3.5 |
3.0 |
6.8 |
10.0 |
4.3 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
MOST
OF US WOULD AGREE THAT WE SHOULD SAVE MORE MONEY, reduce
our gas consumption, or even lose weight, but few of us look
forward to the work involved in implementing these changes
in our daily life. In psychology, this tension between what
we know is good for us and the work involved to get it done
is referred to as the “want/should conflict.” In
December 2006 research by Max Bazerman, a professor of business
administration at Harvard Business School, examines what
it takes to get us beyond balking at the work or sacrifice
involved in making positive life changes.
Significantly,
Bazerman found through four experiments that people are more
likely to choose what they believe they should
choose (for instance, save more) when the choice will be
implemented in the future rather than in the present. What’s
the rationale behind the phenomena Bazerman refers to as
the “future lock-in?” He surmises that individuals
tend to think that their “future selves” will
behave more virtuously than their “present selves,” making
good-for-you changes easier to live with.
Bazerman points
out that his research has implications for public policy,
where citizens are often asked to consider
binding policies that trade short-term interests for long-term
benefits. He stresses that if policymakers advocate for reforms
that would be decided upon in the present, but go into effect
in the future, the “future lock-in” might encourage
citizens to weigh a policy’s abstract merits more than
its concrete costs.
Of course, there are personal finance
implications, too. Let’s say, you know you need to
sock more away for college. Rather than make a portfolio
change today, put it
on your calendar for next week.
New Year’s
Resolutions?
If you want to increase the odds of following
through on your New Year’s resolutions, identify the emotions
and values that will drive your actions toward achieving
them. If you cannot tie any emotions and values to your resolutions,
that’s an indication that they are not very meaningful
to you and your chances of following through are slim.
Can you unscramble the words to reveal
three "Holiday Plants"?
Pianist
Toe
Elite Most
Rams Yore
Click here for the answer.
Best Regards,
P.S. Please feel free to forward
this newsletter to family, friends, or colleagues.
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