Oh, For Crying Out Loud!

August 4th, 2011 at 12:34 pm

What the heck is going on with the stock market?!? 

The DOWs down 2.5% (almost 300 pts) as we speak, though it’s coming back a bit (I said a half-hour ago this was an overcorrection—shoulda put in a call option!).

I get it—kind of.  The economy’s lousy, the political system is too, the European debt crisis is dragging on if not deepening (I’m doing my part to help by eating a Greek yogurt as we speak), and the debt deal apparently hasn’t pleased anyone.

But all of this was known, except for the latter—and the threat of default is behind us now, at least for awhile.  Maybe investors are reading stuff like this (a proposal to make the “dollar of debt ceiling for a dollar of cuts” the new standard) and getting nervous that political dysfunction is now enshrined in the system.

Equity markets didn’t like the jobless claims report, because, hey: who knew the job market was stalled??!

Sorry–don’t mean to get so dyspeptic.  It’s not unusual for the market to be manically depressive and psychotraumatically challenged at a time like this.  But we really need some good news.  And that may not happen until we get some good policy, a whole lot better than what’s been coming out of this town of late.

Update: Um…did I say “call”…I meant “put”–DJIA falling again, down over 400 pts, 2:30.

DJIA, circa 12:45pm (Source: Bloomberg)

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11 comments in reply to "Oh, For Crying Out Loud!"

  1. Carol says:

    It’s a pause that refreshes…short sellers get to make profits, others take their profits, and everybody with money cheers while pretending it has something to do with the economy.


  2. Michael says:

    So the strange thing is, a week ago, everyone was saying that Austerity Will Save Us.

    Now, this week, everyone is suddenly noticing that if you have a lot of unemployed people, then you fire a lot of people, you have more unemployed people.

    I have no idea why we’re suddenly allowed to acknowledge this.


  3. D. C. Sessions says:

    But we really need some good news. And that may not happen until we get some good policy, a whole lot better than what’s been coming out of this town of late.

    And that isn’t happening any sooner than January 2013. Quite likely not then, because there’s no sign that the American public has gotten any closer to reality than we were nine months ago.


  4. foosion says:

    You have to look at the treasury market too, where the 10 year is now at 2.43%, down about 20 bps today. The whole yield curve is flattening.

    The market likely didn’t fully realize how bad things are. Recently we’ve had big downward revisions to GDP numbers (historic, but indicative of the future and a reason to lose confidence in BEA reporting), a deficit deal that demonstrates our govt is totally dysfunctional, abandonment of hope that the payroll tax holiday or unemployment insurance will be extended and the White House statement that there’s no threat of a double dip, showing its totally out of touch and not credible.

    The Dow is down 478 at the moment, and the broader market is down 4.6%.

    Maybe the Fed will act. Oh yeah, someone forgot to fill some vacancies.


  5. The Raven says:

    I think the deal dashed all hopes for a recovery in the short term. Before, there was still some hope that matters might get better, and that at least the programs currently in place would stay in place. Now both of those are gone.

    You’re an economist–do you have any idea how bad things will get, and how fast? How long before this becomes the Greater Depression?


  6. Ben says:

    http://economix.blogs.nytimes.com/2011/08/04/stocks-are-still-expensive/

    Stocks were overvalued so this isn’t really a bad thing.


  7. foosion says:

    @Ben – stocks should be valued as the discounted present value of future earnings or as a multiple of future earnings. Since we don’t know what future earnings will be or what would be an appropriate discount rate or multiple, it’s rather difficult to say if stocks are properly valued.

    PE10 is just a rule of thumb to normalize earnings as a means of approximating future earnings. The idea is that regular p/e is too volatile. These metrics are useful if the future will be a continuation of past trends and not useful if the future won’t be on trend.


  8. C Heinz says:

    What happens tomorrow when BLS publishes their horrendous numbers? What will the market do? My gut tells me Freddy Krueger type slashing followed by an early market close to stop the bleeding.


  9. The Raven says:

    Following on my last thoughts, I suppose one could view this as a correction. Perhaps the big investors have gone back to their models, factored in a lost decade, and are shifting their bets, going from stock to bonds. If this is so, I suppose this would become a trend, and some of the slack in interest rates would be taken up. I wonder if, ultimately, bond prices would rise.

    Too soon to tell, I suppose, though some interviewing of personnel at the big institutional investors might give some hints.


  10. lambert strether says:

    What the heck is going on with the stock market?!?

    Why ask me? Why not ask whoever rigged it?


  11. jo6pac says:

    It’s nothing to get excited about ws is just turning everyone they can into serfs as they wipe out 401 and pensions.

    It’s just business as usual and everything is on schedule, so please move along.


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