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Too-Big-To-Think . . Out-Of-The-Box

08/09/2013

My view of Wells Fargo is that, unlike Goldman Sachs, they have a large number of good and decent people trapped in a hopelessly hidebound giant, that is more focused on yesterday’s ideas than tomorrow’s.  Still, because they are so giant and publish to so many readers, I do follow their thinking.  In no particular order, here is the latest:

1.  GDP will continue to grow slowly but steadily, ending next year at 2.4%.
2.  Job growth will remain about 200 thousand a month.
3.  The unemployment rate will drop slowly to 7.0% by the end of 2014.

Even though they predict inflation to remain muted, they do expect the capacity utilization rate to hit 80% in the third quarter of next year.  To classical economists, that is the traditional “trigger” for inflation.

Lastly, they expect the interest rate on 10-year Treasuries to rise from 2.6% now to 3.4% during the fourth quarter of next year.  But, they expect the rise to be slow and steady.

I’ve become more interested in “behavioral finance” recently.  Why is it that different people will view the same economic data and come to different conclusions?  It is due to their biases, of course.  One of those biases is the “recency bias,” which means a person naturally assumes that whatever is happening today will continue to happen tomorrow.  I suspect Wells Fargo may be guilty of that bias, probably as a result of too much compromise among too many economists.  They are certainly too-big-to-fail and may also be too-big-to-think-out-of-the-box.

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