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What Am I Supposed to Do?

JACKSON HOLE, Wyo. -- I believe in coyotes (and coyote-ugly) and time as an abstract.

I believe my shirt is wearing thin. I believe my humor's wearing thin. I believe in example. I believe my throat hurts.

I believe

Milton Friedman

. I believe in his income hypothesis. I believe that cumulative longer-term portfolio changes (and not short-term swings) are the things consumers treat as permanent; I believe the stock-wealth thing is much more an accumulative beast than it is a here-and-now one. I believe that spending can continue to outpace income for a long time yet owing to the fact that the huge store of stock wealth that's been building up over the past five years remains so large. I believe that it'll take even year-on-year


readings that persist over the course of at least a year to even begin to chew seriously into that kind of fat.

I believe that there exists a two- to three-year lag between spending and material (and lasting) stock-market moves. I believe that the stock-wealth thing accounts for something substantially less than a quarter of total spending. I believe that even if you carve a full quarter out of a consumption number that's growing at an 8.1% rate you're still staring at a spending pace that's way too big (and unlikely to slow quickly enough) to make our central bankers happy. I believe that only a stock setback marked and long-lasting enough to first put a serious squash on jobs and income (and then an equally big one on spending) is capable of slowing this economy in any kind of a meaningful way at all.

I believe that any analyst or forecaster can take any two economic variables and with enough torture plot them in such a way that they show strong correlation. I believe that graphing a given measure of stock prices against retail sales (a series that captures less than half of the spending that goes on in any given month) tells us absolutely nothing.

I believe

Lee Harvey Oswald

acted alone.

I believe the professor who told me that the economy runs not on fancy food and rich people but rather on

Kentucky Fried Chicken



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I believe house prices and jobs (and the income they produce) have more to say about wealth than do shares.

I believe that close to a fourth of the wealth of U.S. households comes in the form of equity in owner-occupied housing. I believe that the level of this wealth (in the form of capital gains) rises when house prices increase; I believe that a substantial part of it is extracted as cash (mainly as a consequence of home turnover). I believe that each home sale over the past five years has produced an average 40 grand in capital gains; I believe that this couple-hundred-billion-dollar Joe-and-Jane injection (largely in the form of unencumbered cash) and its multiplier impact have more to say about spending than do shares.

I believe the


take: I believe that the full-employment thing represents the primary force behind rocketing consumer spending. I believe that the income that comes from an employment increase to 131 million from 117 million in five years (along with the good feelings that come with being employed) is the one thing most responsible for strong spending.

I believe there won't be a material economic slowdown until there's a material spending slowdown; I believe there won't be a material spending slowdown until there's a material employment slowdown.

I believe it is no coincidence that there are 108 beads in a Catholic rosary and the same number of stitches in a baseball. I believe there ought to be a constitutional amendment outlawing


and the designated hitter. I believe in the sweet spot. I believe in the hanging curve ball.

I believe that consumption has been growing faster than income for most of the past two decades; I believe that unsustainability has never proven to be a particularly useful guide in formulating near-term forecasts of anything. I believe the frequent assertion by some central bank critics that monetary policy has been (and is still now) too tight ignores completely a pace of domestic demand that grows only stronger. I believe the people who argue that next month's tightening will be the last (witness

Joe Battipaglia

on television this morning) will continue to prove as wrong about policy rates going forward as they've proven since last autumn (I believe I remember Joe telling us that "the


has finished its work on interest rates" in October).

I believe the fact that the money numbers turned up in March is absolutely remarkable. I believe central bankers haven't been nearly aggressive enough in taking back the extra liquidity they handed out to save the world from financial crisis. I believe they'd be silly to assume that a stock setback like the one we've seen (especially if it turns out to be temporary) will do something meaningful to help their cause; I believe that the strong labor markets and demand they keep citing (as well as the summer 1998 experience) means there's no way they will. I believe they know they've already sown too much seed; I believe they know full well that any aid coming from a negative stock-wealth thing will take a long time to unfold; I believe they know that a lot of bad things can happen before it does. I believe policymakers are more worried than they let on.

I believe that the central bank plans (right or wrong) to keep hiking policy rates until (other things equal) financial conditions are tight enough to bring the rise in asset values into line with that of household incomes. I believe policymakers will not be entirely happy until they slow the increase in asset values to the 6% rate at which disposable income is growing for a good long time.

I believe in the small of a woman's back.

And I believe in long, slow, deep, soft, wet kisses that last three days.

Side Dish

What do you believe?

I believe in life after love.

I believe in a beautiful day.

I believe you positively suck.

I believe I'll have another drink.

I believe there's an answer waiting when the day is done.