Reality Bites

Today’s TGIF 2 Minutes was delayed to reflect a speech given earlier today in Jackson Hole, WY by US Federal Reserve Chair, Jerome Powell.

Earlier today (Friday) US Federal Reserve Chairman Jerome Powell spoke in a widely anticipated speech at an annual meeting of the Kansas City Federal Reserve Bank. The market and investing worlds were looking for guidance from the Fed Chair regarding interest rates and future inflation. Part of the reason for the speech being so closely watched goes back to a former Fed Chair. For those old enough to remember, in December 1996 Alan Greenspan made a now famous speech that rocked the markets when he coined the term, “irrational exuberance.” Then Fed Chairman Greenspan commented,

  • “How do we know when irrational exuberance has unduly escalated asset values…?” Greenspan went on, “We should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy.”*

And down the markets went for a time. 

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A Little Paranoia Is a Good Thing

Record-breaking, big outlier events tend to move the needle the most in the economy and stock market.* Note the word, “outlier.” Outlier events typically are surprises and are indeed unlikely. In his beyond excellent book The Psychology of Money author Morgan Housel lists five events that were outliers with world-changing consequences:

  • The Great Depression
  • World War II 
  • The dot-com bubble
  • September 11th
  • The housing crash of the mid-2000’s.

A conclusion could be drawn from the book’s chapter titled, “Surprise!” that surprises are perhaps the most reliable thing going. But the irony of the reliability of surprises is we do not know what the surprise is until after it has unfolded.

Making room for error can be as simple as having a having a “Plan B” and “Plan C” – or being OK with starting completely from scratch – if “Plan A” does not work out. 

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The New Car Conundrum

Shorter post today – the summer weather is HOT! And car purchasing decisions can make a person sweat, or not.

Last July, yours truly bought a new car – after 16 years driving the same fully-paid for car. The old car was purchased as a certified pre-owned (back when CPO saved tens of thousands of dollars); the new car purchase last year was a brand-new car from a dealership. There were “those people” who commented, “Why buy a car now (last July) amidst high prices for new and used cars? Why not wait for prices to come down?” There were valid reasons to ask those questions. But looking back, the decision was a wise one and has stood up amidst full-on, continuing high inflation.

When the time comes to replace an older vehicle, even inflation may not hold up as the most valid reason to delay the purchase.

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