Investors Are Crazy Optimistic, But For No Apparent Reason

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Over at the Financial Times, Robin Wigglesworth has an interesting chart to show us. It’s a little hard to decipher, though, and takes some explaining. First, here’s the chart:

The pink line is “hard” economic data: employment rates, GDP growth, etc. The purple line represents “soft” data: things like consumer sentiment, purchasing manager optimism, etc. Roughly speaking, pink is how things are and purple is how people feel.

The fist thing to notice is that the hard data doesn’t bounce around very much. It mostly stays in a band between -0.5 and +0.5. (I have no idea what those numbers represent. Some kind of overall index, I imagine.) The animal spirits data, however, is like a kid’s yo-yo: it routinely shoots up and down from -1.5 to +2.0.

The second thing to notice is that these indexes mostly move in tandem. When the hard data goes up, the soft data goes way up. When the hard data goes down, the soft data goes way down. People react very strongly to even modest changes in the economy.

And then there’s 2016-17. After a modest slump, the hard data has been ambling along at zero for the past year. But starting around the election, the soft data suddenly went sky high. There’s nothing in the economic data to support this, but the Trump election seems to have filled the investor class with overwhelming optimism.

So what happens when reality sets in? There’s no special reason to think the economy is going to take off anytime soon, and Trump’s obvious bumbling will eventually sink in to everyone. At that point, the animal spirits are set to come crashing down.

What will that do to the actual economy? Maybe nothing. Maybe the actual economy really does respond solely to macro phenomena and animal spirits have nothing to do with it. That’s certainly been the case as animal spirits have skyrocketed. Then again, maybe the economy does react to animal spirits plummeting. This is not a real-life experiment I’m especially eager to see play out.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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