Friday, May 8, 2009

Will the Animal Spirits Eat the Green Shoots?

In today's Financial Times Christia Freeland declares that the government has revived the nation's animal spirits by successfully managing the public mood. Link here.

After reading her article I recommend a chaser: Paul Krugman's column in today's New York Times. Krugman paints a rather more sober picture. Link here. (Also check out Doug Kass's analysis of financial stocks. Link here.)

Where Freeland sees the burgeoning green shoots as a harbinger of spring, Krugman tells us to be very, very afraid.

He fears that Wall Street is getting ready to go back to business as usual, as though nothing really happened. Our animal spirits have simply recovered too quickly... and that is not a good sign.

To mix two metaphors, Krugman is predicting that our hungry animal spirits are going to eat the economy's green shoots.

It makes good sense, from a contrarian point of view. If everyone is feeling as good as Freeland says they are, wouldn't a believer in contrary sentiment take that as an indicator that trouble lies ahead and that we should be very, very afraid?

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