Triple Shot of Confidence

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I wonder if we will look back in a few years and view the week of November 1-5 2010, as when the US economy finally turned the corner.

Last week, the market received a triple shot of encouraging news. On Tuesday, voters put the Republicans in charge of the House; on Wednesday, the Fed announced it was buying $600 billion in treasuries; and on Friday, the monthly employment report beat expectations.

Now before anyone gets up in arms over my comments on the Republicans taking over the House, I have no intention of making a political statement. I’m simply acknowledging that the majority of the electorate voted the Republicans into office and the market desired such an outcome. Furthermore, both parties now have something to hang their hat on; the Democrats have their people in charge of the White House and Senate and the Republicans have their people in charge of the House. Politics aside, perhaps a little happiness from supporters of both parties will have a positive effect on economic sentiment.

The Fed’s announcement to purchase $600 billion in treasuries over the next eight month should ensure that rates remain at historically low levels for quite some time. For most investors, speculators, homeowners and readers of this site, I’m sure this comes as great news. And of course, everyone should be upbeat by Friday’s jobs report, as 151,000 jobs were added to the economy last month.

After the jobs report was announced on Friday, speaking to some of my colleagues and clients, I felt a level of excitement and optimism that I haven’t experienced in over three years. I don’t think it was due to any one of the aforementioned events, as one could argue the “glass half empty.” Will we end up in a political stalemate where nothing gets accomplished? Will inflation rear its ugly head? Was October’s jobs report an aberration?

Rather, added up in its totality, the week’s events had a great impact on our psyche. I think that we’ve been down as an economy for so long now, that we looked ahead at these events, whose outcomes were largely predictable and made mental bets on them. When our triple parlay of bets came true, it strengthened our confidence and reminded us that there’s light at the end of the tunnel.

No matter the psychology behind it all, it was undeniable that there was a new-found optimism throughout the day this past Friday.  There was a strong sense that we would be able to exert a greater influence over our economic success in the coming months. I can only hope that this conviction continues and that we are beginning to crawl our way out of this economic mess we currently find ourselves in.

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